Downgrade of Irish debt unlikely, say agencies

TWO RATING agencies on which the European Central Bank depends when assessing collateral needs have said they are unlikely to downgrade Ireland, a day after Moody’s downgrade of Portugal raised concerns that Ireland may be next.

A senior analyst at Fitch said yesterday that Ireland was unlikely to default on its debt and that developments in Greece had not been sufficient to change the rating agency’s view on Ireland.

“In Greece, the demands for money are immediate” while “Ireland won’t require additional funds for a good year”, Chris Pryce said.

Meanwhile Toronto-based rating agency DBRS said it was unlikely to downgrade Ireland. The agency is due to publish its latest review of Ireland in the next six to eight weeks but its most senior sovereign analyst said the current A rating was unlikely to change.

DBRS is one of four rating agencies considered by the ECB when it is deciding which bonds can be used as collateral in its lending operations.

It is the only rating agency to rate Ireland as A.

Moody’s cut Portugal’s government debt rating four notches on Tuesday from Baa1 to Ba2. The Ba2 rating is “sub-investment grade”, commonly known as “junk” status.

The move by Moody’s saw the spreads on the debt of peripheral euro zone nations widen, with yields on 10-year Irish government bonds increasing 88 basis points to 12.43 per cent.

The comments by Fitch and DBRS failed to calm market sentiment yesterday, with Irish 10-year sovereign bond yields rising to 12.73 per cent yesterday.

Fitch’s Pryce said yesterday that Ireland did not need a second bailout, noting that the Irish economy’s return to growth in the first quarter and its progress in reducing the budget deficit have “been marginally on the positive side” since April.

Fitch took Ireland off ratings watch negative in April and affirmed its BBB+ rating. Ireland lost its AAA rating from Fitch in 2009 as the country’s banking crisis worsened.

“We believe there are probably no further shocks in the banking system which is a good sign,” Pryce said.

DBRS said nothing had significantly changed in Ireland since the agency’s last review.

“The main points are the fiscal adjustment, which has been very commendable, and real economic growth where I think the verdict is still out . . . so overall the outcome has been somewhat neutral on the rating,” DBRS’s sovereign analyst Fergus McCormick said.

“In terms of recapitalisation of the financial sector, the terms have already been identified so we don’t expect any more major recapitalisations going forward,” he added.– Additional reporting: Bloomberg/ Reuters