We saw last month that the sovereign debt markets were not exactly biting their nails about the outcome of the Lisbon treaty referendum, and last week they were not holding their breath awaiting news from the Green Party's weekend conference. Interest rates on Irish paper IOUs fell, along with most of the rest of Europe, in the last five days.
The key 10-year interest rate on the Irish 10-year bond fell four basis points to 4.64%, and other countries including Britain (3.37%) also showed modest falls.
The biggest drop in sovereign rates were seen by countries which, from the outside, may appear to be the most politically troubled – the president of the Czech Republic, down 27 basis points to 4.63%, is, after all, attempting single-handedly to veto Lisbon, while interest rates in Greece, after its snap election, fell to 4.41%.
For Ireland, the message from the sovereign debt markets is again loud and clear – interest rates will only rise from their high levels if there is any prospect that the 2010 and 2011 budget deficits will rise significantly. The sale by the National Treasury Management Agency – raising €7bn by selling 15-year paper and thereby pre-funding a big chunk of next year's €20bn deficit – may also have helped.
The choice of 15-year paper probably shows concern that issuing more bundles of 10-year paper, just as the rest of Europe is doing the same, may be a bit too risky.
But note that issuing longer-dated debt comes at a price – the €7bn paper was sold at an interest rate of 5.47% compared with the 4.64% rate for Irish 10-year paper.
Unfortunately, it appears that insuring against potential trouble on debt markets in the coming months comes at a price.