Gap between Irish and German 10-year bond yields reaches record high

The difference between Irish and German 10-year government bond yields rose to a record high of more than 540 basis points last week, with several of their eurozone counterparts following.

Most worryingly, perhaps, the Greek yield spread over German bunds exceeded 900 basis points and the ­Portuguese spread 430 basis points.

Yield spreads are expected to widen until there is more clarity on the financial fate of the peripheral eurozone countries. Jean-Claude Trichet, the president of the European Central Bank (ECB), gave no indication that there would be any changes to the organisation’s course. (article continues below)

Interest rates remained unchanged and there was no hint that the ECB has been influenced by America’s Federal Reserve’s decision to embark on a second round of quantitative easing worth $600 billion (£375 billion).

Eurozone spreads were partly exacerbated by the Irish recovery plan, which drew scepticism about the accuracy of the government’s economic forecasts. Eurointelligence, an independent economic commentary and analysis service, criticised the underlying assumptions, although the government had produced the plan to allay fears about Ireland’s economic health.

Nicola Marinelli, the manager of the MFM Glendevon King Global Bond fund, says that with so much uncertainty in bond markets spreads can ­easily widen further. He says it is likely that countries such as Greece, Portugal and Ireland will restructure their debt.