Sovereign moves tighter after successful return to bond markets

Ireland’s five-year CDS spread rallied sharply yesterday, following the country’s successful return to the bond markets for the first time since its EU/IMF bailout in November 2010. Its foray into the markets saw it swap €3.53 billion in bonds due in 2014 for new bonds with a 2015 maturity. The move sees 30% of bonds due to expire in January 2014, immediately after the proposed ending of the country’s bailout, refinanced with a later maturity.

The yield on the three-year bonds was 5.15%, compared with a peak level of 22.5% for comparable bonds in July of last year.

Ireland’s five-year CDS spread moved 31 basis points tighter to 645bp yesterday following the auction, moving in by an additional 13bp in early trading this morning according to data from Markit.

The move tighter comes despite some hard-hitting comments by German chancellor Angel Merkel yesterday, in which she said that Germany would not throw endless amounts of money at the eurozone crisis in order to bring about a final resolution to the situation. At the World Economic Forum in Davos, Merkel said that Germany didn’t want to “promise something it couldn’t deliver” and flatly rejected calls to double or treble the size of the eurozone rescue fund.