Ireland's bonds not yet at level for 'feasible' return to market

BOND PRICES are not yet trading at a level for Ireland to return to the markets even as investors have given bank stress tests an initial “positive” reaction, said John Corrigan, chief executive officer of Ireland’s National Treasury Management Agency.

There has been a “marked improvement in the performance of Ireland’s bonds” since the stress tests were announced on March 31st, he said in a speech in Dublin last night. While this was an important start “bonds are not yet trading at a level that would make a return to the markets feasible for the NTMA”.

His comments came as rating agency Fitch described the stress tests as “a credible assessment of the additional capital that Irish banks will require to absorb potential further credit losses”.

However, the agency, which affirmed its rating on Ireland at BBB+ but with a negative outlook, said “it is too early to judge whether the additional capital injections will stabilise banks’ funding positions, which remains an ongoing source of concern”.

“The Irish economy appears to be nearing stabilisation and the latest efforts to resolve the banking crisis are credible. Nonetheless, as reflected by the negative outlook, significant threats to an economic recovery and fiscal consolidation remain,” according to Douglas Renwick, director in Fitch’s sovereign group.

The agency has cuts its forecast for Irish growth this year from 1.5 per cent to 0.5 per cent, and expects that “recovery will emerge” in the latter part of this year and the economy will expand by 2.5 per cent next year.

Fitch projects gross government debt to GDP ratio will peak at 116 per cent in 2013 and 2014, gradually declining thereafter.

“Under this scenario debt sustainability is achieved, although the high public debt burden renders Ireland vulnerable to adverse shocks. However, in the absence of a sustained economic recovery, debt could continue to rise and Ireland’s sovereign credit profile and rating could deteriorate accordingly.”