28 May 2012

Govt borrowing costs fall on euro zone woes

12:50 pm on 28 May 2012

Fears that the 17-nation euro zone could collapse are continuing to drive down the cost of borrowing for the Government.

The interest rate on the benchmark 10-year bond fell to 3.54% percent at the latest weekly auction on Friday, and on Monday was 3.39%.

Westpac currency strategist Imre Speizer says bond rates have collapsed over the past two months, driven down almost entirely by fear of the euro zone unravelling, which would cause global financial market turmoil.

He says markets are pricing in a 0.5% cut by the Reserve Bank, because they think it is a possiblity the euro zone may change its form in some way.