This is the view of Michael Vaknin of Goldman Sachs Global ECS Markets Research:
Irish bonds have substantially underperformed the rest of EMU periphery.
A heavy pipeline of Irish bank debt rolling off soon brings back memories of the Greek turmoil.
But we believe risks are overpriced, as several backstops are in place:
The banks can increase funding through the ECB liquidity programs.
And the ECB could intervene again in ‘dysfunctional’ sovereign markets.
More fundamentally, we argue that Ireland’s issue is liquidity, not solvency…
…Hence if the EFSF is activated, spreads would likely fall significantly.
Watch for signs of ECB intervention and banks’ reduced issuance to cement the case for ‘long’ Ireland.