Loki
12-17-2010, 10:17 AM
Ireland's credit rating slashed five notches (http://www.guardian.co.uk/business/2010/dec/17/ireland-credit-rating-slashed-moodys)
Moody's downgrades Ireland's credit rating and maintains 'negative' outlook on concerns cuts will hurt domestic demand
Graeme Wearden
guardian.co.uk, Friday 17 December 2010 08.32 GMT
Ireland's credit rating has been slashed by five notches by Moody's, which also warned that the country faced an increasingly uncertain economic future.
Moody's said that the cost of rescuing Ireland's banking sector meant Irish debt was now significantly riskier. It also expressed concern that the deep austerity cuts due over the next four years will hurt domestic demand. The agency maintained a "negative" outlook on Ireland, and said that further downgrades are possible in the future.
Moody's had previously rated Ireland as AA2 – the third highest level. Today's downgrade to BAA1 leaves its sovereign credit rating just three places above 'junk status', and follows a similar move by fellow ratings agency Fitch last week.
"Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank related contingent liabilities on the government's balance sheet", said Dietmar Hornung, the vice-president of Moody's.
"The increased uncertainty regarding the outlook for the Irish economy – an additional determinant of today's rating action – is the result of the continued severe downturn in the financial services and real estate sectors as well as the ongoing contraction in private sector credit," Hornung added.
Moody's had warned last month that it was planning to cut Ireland's rating by more than one notch. Investors reacted to today's downgrade by pushing up the cost of Ireland's debt. The yield on Irish 10-year government bonds rose to 8.24%, up from 8.18% overnight. The euro lost around 0.2 cents against the dollar, dipping below the $1.33 mark.
"A five-notch downgrade is never good news but this move just brings it in line with the Fitch BBB+ rating," said Gary Jenkins, head of fixed income research at Evolution Securities. "However the market reaction will likely be quite negative as Moody's tends to grab the markets' attention slightly more than Fitch. So sentiment is likely to be weak this morning."
Moody's did offer some consolation to Ireland as it digest last week's austerity budget. It cited its competitiveness, its "business-friendly tax environment", and recent encouraging export data.
The €85bn (£73bn) bailout agreed for Ireland in recent weeks was meant to dampen the eurozone debt crisis. But the situation appears to have worsened again in the last few days, with Moody's threatening on Wednesday to downgrade Spain's credit rating, and some economists predicting that Greece will default on its debt.
Moody's downgrades Ireland's credit rating and maintains 'negative' outlook on concerns cuts will hurt domestic demand
Graeme Wearden
guardian.co.uk, Friday 17 December 2010 08.32 GMT
Ireland's credit rating has been slashed by five notches by Moody's, which also warned that the country faced an increasingly uncertain economic future.
Moody's said that the cost of rescuing Ireland's banking sector meant Irish debt was now significantly riskier. It also expressed concern that the deep austerity cuts due over the next four years will hurt domestic demand. The agency maintained a "negative" outlook on Ireland, and said that further downgrades are possible in the future.
Moody's had previously rated Ireland as AA2 – the third highest level. Today's downgrade to BAA1 leaves its sovereign credit rating just three places above 'junk status', and follows a similar move by fellow ratings agency Fitch last week.
"Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank related contingent liabilities on the government's balance sheet", said Dietmar Hornung, the vice-president of Moody's.
"The increased uncertainty regarding the outlook for the Irish economy – an additional determinant of today's rating action – is the result of the continued severe downturn in the financial services and real estate sectors as well as the ongoing contraction in private sector credit," Hornung added.
Moody's had warned last month that it was planning to cut Ireland's rating by more than one notch. Investors reacted to today's downgrade by pushing up the cost of Ireland's debt. The yield on Irish 10-year government bonds rose to 8.24%, up from 8.18% overnight. The euro lost around 0.2 cents against the dollar, dipping below the $1.33 mark.
"A five-notch downgrade is never good news but this move just brings it in line with the Fitch BBB+ rating," said Gary Jenkins, head of fixed income research at Evolution Securities. "However the market reaction will likely be quite negative as Moody's tends to grab the markets' attention slightly more than Fitch. So sentiment is likely to be weak this morning."
Moody's did offer some consolation to Ireland as it digest last week's austerity budget. It cited its competitiveness, its "business-friendly tax environment", and recent encouraging export data.
The €85bn (£73bn) bailout agreed for Ireland in recent weeks was meant to dampen the eurozone debt crisis. But the situation appears to have worsened again in the last few days, with Moody's threatening on Wednesday to downgrade Spain's credit rating, and some economists predicting that Greece will default on its debt.