Government debt spooks global bond markets

An Irish bond market already in free fall plunged further after Ireland announced it planned to nearly double its package of spending cuts and tax increases to try to rein in its huge deficit. Investors took it not as sign of resolve but rather of Ireland’s desperation and uncertainty about the true extent of its problems.

The yield on Ireland’s 10-year bonds climbed to 7.6 percent last Friday, expanding the gap with the 2.5 percent interest rate on comparable bonds issued by Germany, which is emerging most strongly from the European debt crisis. Borrowing costs in Spain, Portugal and Greece also spiked upward again, as investor concern re-emerged that those countries would be hard-pressed to bring their deficits under control and avoid defaulting on their bonds.

The New York Times says the bond market jitters were forceful reminder of how wary investors remained after Europe’s debt crisis last spring, despite the commitment of combined 750 billion euros in bailout funds by the European Union and the International Monetary Fund. Whether in the UK, Spain, France or Italy, European nations remain saddled with heavy welfare obligations — ones that inevitably must be curtailed to meet ambitious deficit targets, as their tax revenue is constrained by low economic growth, says the Times.

 

 

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