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Published On: Sun, Sep 7th, 2014

ECB’s latest interest rate cut means free lunch for Ireland

After being bailed out by EU partners four years ago, Ireland can now borrow for free, after ECB’s latest interest rate decrease.

After being bailed out by EU partners four years ago, Ireland can now borrow for free, after ECB’s latest interest rate decrease.

Ireland was bailed out by EU partners four years ago, and now it can borrow money from investors eager to pay for lending. Along with other countries, like Germany and Austria, Ireland saw its two-year note yield plummet to below zero, for the first time. Its 10-year bond rate similarly declined harshly along with Italy’s bonds, after the cutting of the key interest rate by ECB policy makers on Thursday.

An aid of at least 700 billion euros is to prop the sluggish eurozone economy. On Friday a report was released confirming the stall in the region’s economic recovery for the second quarter. Negative yields not only reflect ECB’s policy; they are also an indication of a surging belief that there is no upbeat prospect for the EU economy.

The Irish two-year yield slumped to 0.004 percent, by two basis points, shedding 0.02 of a percentage point on Friday, having previously declined to minus 0.004 percent. The 4.6 percent note that is due in April 2016 surged by 0.015, equal to 15 euro cents per 1,000-euro face amount, reaching 107.365.

For investors a negative yield means that when the debt matures they will get less returns compared to the amounts at which they bought the securities.

In July 2011, the Irish two-year yield soared to 23.503 percent, which was less than a year after the country sought a 67.5 billion-euro bailout. The money was used for Ireland’s bank system which was on the verge of collapse after the most grueling busting of West Europe’s real-estate market.

Germany, France, Austria, Belgium, Finland and the Netherlands also have negative two-year rates; non-euro nations Switzerland and Denmark offer negative yields as well.

There was a significant drop in Ireland’s 10-year yield, by four basis points, reaching 1.703 percent; Italy’s yield dropped to 2.275 percent. There was a decline by one basis point in the benchmark German 10-year bund yield to 0.96 percent.

The GDP in the three months through June remained unaltered from the first quarter, when it saw a 0.2 percent increase, confirming the Eurostat August 14 estimate.

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