Irish Bonds - Not Again, Still.

On the wire:

Ireland proved unable to shake off rising sovereign-debt fears Thursday, with bond yields jumping as investors reacted to indications some Anglo Irish Bank bondholders may not get all their money back and official data showed the economy contracted unexpectedly in the second quarter.

The yield premium demanded by investors to hold 10-year Irish government bonds over German bunds topped 4.3 percentage points Thursday, the highest on record and up from around 4.1 percentage points on Wednesday. The cost of insuring Irish government debt against default hit a new record Thursday. The spread on five-year Irish credit-default swaps was seen at 490 basis points in late morning action, up from around 460 on Wednesday, according to data provider Markit.

Its like a car wreck, you don't want to look but are somehow compelled to.  The situation continues to deteriorate in Ireland and, ultimately, in PIIGS Europe.  As I have said, this is going to get worse before it gets better - and it will spread.  Sovereign spreads will be under pressure, pressuring the equity markets and push the currency lower.  While the chart below shows the recent strength of the Euro, I am expecting this to turn around.

That aside, I also read the following:

Analysts said a report in the Irish Examiner newspaper contributed to the latest round of concerns. The newspaper said Finance Minister Brian Lenihan had given a strong hint that the riskiest lenders to nationalized Anglo Irish Bank may not get all their money back.

The report said Lenihan explained that a bank guarantee program would be extended once it ran out at the end of September. The new measure, which was effectively passed by the cabinet earlier this week, would cover only deposits and not subordinated debt, the report said.

Here's a thought:  The bank failed!  As a subordinated holder you should not get your money back.  I realize that the bank was nationalized, but it would have otherwise failed and you would get nothing.  Trust me, I've been there.  Okay, extrapolating this would smack around FNM/FRE sub debt, but perhaps that is as it should be.  Ever read a prospectus on sub debt?  This is what it is meant to do - absorb losses so seniors survive (hopefully) in the event of a failure.  The more things change...