Japan, Ireland leave markets unmoved

Expectations of an imminent fiscal stimulus in Japan and a new bond issue from Ireland weren't enough to shake the credit markets from their slumber today.

The Markit iTraxx Europe index opened wider, but soon recovered as sentiment turned and spreads extended their tightening trend. The index was trading between 101bps and 102bps for most of the day, with banks failing to lead the market, as they have done in recent days.

Reports of a new Japanese stimulus package didn't have a great deal of impact beyond the key yen currency pairs. The stimulus is expected to be announced on Friday, and it could be worth up to 2% of GDP.

Japan's finance minister also said the country would be purchasing European Stability Mechanism bonds using foreign reserves. It is questionable how effective this latter measure will be in weakening the yen, but it could be politically astute if the Bank of Japan takes a more aggressive approach to depreciation in the months ahead.

Unlike Japan, Ireland doesn't have the benefit of currency management; it has been forced to "internally" devalue as a result. However, the country seems to have done this successfully, albeit at considerable cost to many of the weaker members of society. Its relatively robust recovery - the comparisons to the rest of the periphery are flattering - has helped it return to the capital markets.

Ireland re-opened a 2017 bond today, and managed to raise €2.5 billion with an order book of more than €7 billion. Finance Minister Michael Noonan said that about 85% of the buyers were foreigners, and the spread of mid-swaps plus 250bps was better than the initial guidance.

The country's CDS outperformed sovereign peers by tightening 10bps to 185bps, though the market as a whole lost momentum later in the afternoon.

Given the dearth of news in Europe, tomorrow may see the US take centre stage as Alcoa opens up the earnings season. Interest rate decisions by the ECB and Bank of England on Thursday could limit activity, though no change is expected by either central bank.

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