Ireland’s rating

When Moody’s, the credit ratings agency, downgraded Ireland’s sovereign debt to junk status in 2011, it was the only one of the three major agencies to rate it below investment grade. And the credit downgrade came with a negative outlook, a virtual vote of no confidence. Moody’s feared Ireland might not return to financial markets in 2013 when the bailout programme ended. There were concerns about the high level of public and private debt, and the scale of the property crash. Last week Moody’s, in a report on Ireland’s housing market, said property prices showed signs of stabilising. This has followed a 50 per cent decline in prices from their peak.

Ireland returned to capital markets in 2013 and raised some €7.5 billion. And the State, far from requiring a second bailout, as Moody’s had feared, has not sought a precautionary credit line as an insurance against future funding difficulties after it leaves the bailout programme next month.

Certainly, there are now grounds for Moody’s to review its junk rating of Ireland’s sovereign debt, which it has maintained for two and a half years, despite the improvement in many of Ireland’s economic fundamentals. One such is the cost of sovereign debt, as measured by the yield - or interest rate - on the benchmark 10-year bond. The yield was close to 14 per cent in July 2011 when Moody’s reduced Ireland’s debt to junk status. Last week, the yield had dropped to 3.5 per cent, a measure of financial market confidence in Ireland’s economic recovery.

The agency is right to say that any recovery in the housing market will be slow, given the high level of household debt and the flat lending activities of Irish banks. Nevertheless, as Moody’s readily acknowledges, higher property prices, particularly in Dublin, reflect the boost to investor confidence that Ireland’s greatly improved economic performance has provided.

It is now surely time for Moody’s to reassess its position on Ireland’s sovereign debt.