Indicating an improved creditworthiness, the interest rate Ireland must pay to borrow abroad has eased. But some have not given up on bets the country will go bust.
The credit default swap (CDS) market is the forum for international investors to determine the price of insuring both sovereign countries and large corporations against the risk of skipping a repayment on debts. The bigger the insurance premium, the bigger the perceived risk.
The cost of Irish sovereign debt on the CDS market has, with the real interest rates on the sovereign debt markets, fallen since the dangerous days of late January but it still remains relatively high. Last week, the insurance premium demanded to hold Irish debt was slightly higher than that demanded of Poland and telecoms company BT; was about as risky as holding the debt of retailer M&S; and was slightly less risky than that of Volkswagen. Companies and countries seen most likely to default were Corus, TUI and BCM Ireland Finance (Eircom), ferry company Stena, Fiat and Iceland.
A subordinated debt issue from AIB is seen as risky as EMI or ITV skipping a repayment, while Anglo Irish and a subordinated debt issue from Irish Life is seen as slightly riskier than cable firm UPC and sovereign Lithuania defaulting. Banks RBS and Lloyds are also high on the list of risky debt issuers.
It shows that some international investors continue to question the worth of government guarantees for Irish or British banks, as long as the economies continue to worsen.