The Great Debate UK

Irish debt restructure hangs in the balance



Kathleen Brooks is research director at The opinions expressed are her own.

The assault on the Irish bond market by bond investors has continued with a vengeance this week with 10-year bond yields hovering close to nine percent at 8.91 percent. Since August yields have been trending higher, but they accelerated sharply in mid-October, when they were at six percent. At this rate, yields could be in double figures by next week.

Investors are concerned that Ireland will not be able to meet its financial obligations due to the costs associated with bailing out its beleaguered banking sector. The government has estimated that these costs may top 50 billion euro (£42.7 million), however this sum remains a guess and the true bail-out cost is unknown.

Since the Irish debt crisis was precipitated by the bursting of a mega property bubble, the final cost of writing down the bad debt will not be known until there are some stabilization in house prices. As Irish house prices declined seven percent last year and the fall in prices has accelerated in 2010, this could be some way off.