Ireland is under the spotlight again with her 10 year bond premium to German bunds reaching 355 basis points (at the beginning of 2010, the premium was ‘only’ 145bps. The reason is that her banks need further capital to offset their huge losses in the housing sector. There is nothing very surprising about this; what is surprising is that we are not seeing similar moves in other EU countries where losses must be almost as bad. Or perhaps it is just the Irish being a little more honest about their problems.
Economists that know say there is a shortage of safe assets, hence the rush into Treasuries, Bunds, Gilts etc. This is not just a case of bonds versus equities as there are plenty of bond markets which are not safe, e.g. Greece, Ireland and Portugal. The premium of these markets to G3 bonds continues to widen. I think there is another banking crisis underlying the edginess of today’s markets.
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