Cantillon: Hopefully, good news from Standard & Poor’s will encourage others

Another step on the road to the bailout exit

Michael Hasenstab’s “investment of the decade” theory concerning Irish bonds seems to be holding good.

Michael Hasenstab’s “investment of the decade” theory concerning Irish bonds seems to be holding good.

Sat, Jul 13, 2013, 01:11

Standard & Poor’s’ revision of its outlook on Ireland from stable to positive is welcome news and was quickly reflected in Irish bond yields, with the yield on 10-year bonds falling seven basis points to 3.90 per cent (yields fall as bond prices go up).

Its another step on the road to the bailout exit and puts further daylight between Ireland and the other bailout or quasi-bailout states. Pressure is now growing on Moody’s to lighten up and rerate Ireland as investment grade, which in theory opens the floodgates for all the Far Eastern funds we are told are itching to get a slice of the Irish bond market.

Hence the gentle hint from the National Treasury Management Agency yesterday when it welcomed Moody’s arch rival’s ackowledgement of “the continued progress Ireland is making on the fiscal side and the improved access to capital markets”.

It does seem amazing that rating agencies remain so powerful given their central role in the mispricing of risk that underlay the 2008 financial collapse.

History would argue that any serious investor would be better off binning the rating agency reports and conducting their own fundamental analysis of the country in question before investing.

Indeed, that would appear to have been the approach of Franklin Templeton’s Michael Hasenstab (pictured) whose “investment of the decade” theory concerning Irish bonds seems to be holding good despite storm clouds brewing in yesterday’s trade figures and the recent GDP numbers.

Hasenstab however is the exception and the bulk of his peers – and those based in the Far East in particular
apparently – prefer, or are obliged, to stick to their mandates and blindly follow the rating agencies, despite their manifest failings.

The paradox, of course, is that they are now waiting for a signal from a ratings agency that is so scared of getting it wrong again that it almost certainly will get it wrong again!

But to use an expression that has not been in vogue so much of late – we are where we are.

And thus we have little choice but to wait on Moody’s to screw its courage to the sticking place.

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