This week Standard and Poors downgraded Ireland’s credit rating to AA-. The downgrade resulted in a strong rebuke from the NTMA chairman on all available TV and radio channels. The NTMA was upset that S&P put a zero value on NAMA assets. As everybody knows NAMA assets mostly consist of properties in Ireland. Assuming all Irish properties are worthless as S&P seems to think, home owners can now use the simple formula of: “negative equity = mortgage”. On the positive side S&P has done a great service to the Irish tax payer as it will be difficult for the Government to introduce a property tax on assets valued at zero. Every cloud has a silver lining!

Another bad week for US data as housing data continued to tumble. Existing home sales fell 27% mom and new home sales fell 12.4%. This was combined with weak durable goods number which showed that business investment had slowed. Concerns for a double dip intensified and today’s GDP release will be watched closely for further signs of weakness. With the initial release +2.4% (annualised), surveys show that 1.4% is expected on this second release. Any negative surprises will continue to support US bond yields which have fallen to new lows of 0.45% for 2 year yields. This was despite the auction of 37bn of 2 year notes on Tuesday. Bond auctions continue to be well supported in the US as concerns for the economy continued.

Eurozone peripherals weakened again with Ireland being downgraded by S&P to AA- on Tuesday. The reasons given were the concerns for the banking system and increases in estimates of cost of support. They additionally kept Ireland on negative outlook, reflecting the potential for further deterioration of the fiscal situation which would impact medium term objectives. This resulted in Irelands spread over Germany increasing to new highs of 345bps. Despite this the Irish Tbill auction went better than expected with demand 6.1 times the amount issued. This was after the issuance amount was reduced in half to 600m. Additional good news was that the yield was better than the last auction on August 12th.

Belgiums auction of 3, 10 and 12 year bonds saw good demand as investors paid up for higher rated countries. 10 year German yield continued to fall to new lows and hit 2.09% but later rebounded to 2.13%. Inflation-linkers saw breakeven inflation dipping to 1.5% for 10 year inflation although this later rebounded up 6bps.

After a typically quiet August in terms of bond auctions next week will start again with Italian auctions on Monday with a new 10 year benchmark. This will be followed by issuance from France of up to 9bn of bonds. This is expected to put some pressure upwards on yields as supply will continue throughout September.