Ireland receives vote of confidence

Ireland's CDS spreads rallied on Tuesday after the sovereign sold its first post-bailout bond with consummate ease.

The €3.75bn 10-year issue was priced at a relatively modest level of mid-swaps plus 140bps and received orders exceeding €14bn. Ireland is fully funded into 2015, so there was no pressing need to raise funds. But the bond sale was politically important, and the strong demand for the debt showed that the markets have confidence in an Ireland that is fiscally independent.

Ireland left the troika bailout on December 15 last year, and opted not to seek the comfort of a precautionary credit line from the European Stability Mechanism. This means that it isn't eligible for assistance from the ECB's Outright Monetary Transactions (OMT) programme, though the lack of legal documentation on the OMT makes this uncertain.

Ireland's CDS tightened 8bps to 106bs today, a far cry from the 1,177bps reached in July 2011. The government's austerity policies - and the stoic acceptance of the Irish people - may well have contributed to the impressive spread rally. But the main driver of the credit improvement is almost certainly the commitment of the ECB to the euro's irreversibility, and the unlimited bond buying that implies.

Portugal, which is still under the auspices of a troika bailout, also saw its spreads rally today. The sovereign's CDS tightened 25bps to 292bps, a considerable improvement from the 1,495bps hit nearly two years ago. But the two countries are quite different, not least in the level of political and popular opposition to austerity. Portugal's route back to relative fiscal normality may not be as smooth as Ireland's.

In the corporate world, spreads traded in a tight range ahead of the Fed minutes tomorrow and the US non-farm payrolls report on Friday. The Markit iTraxx Europe was 0.5bp tighter at 68.5bps, while the Markit CDX.NA.IG was 1bp wider at 64bps.