Irish bond yields edge lower

Fri, Oct 12, 2012, 01:00

Irish bond yields dipped this morning after a report indicated ratings agency Moody’s may remove the threat to the country’s credit rating if a deal could be reached on bank debt.

Yields were broadly lower, with the nine-year premium falling as low as 4.747 per cent earlier today.

Moody’s downgraded Ireland’s rating to junk status last year, and the agency has remained negative on the country’s outlook since.

In an interview with the Wall Street Journal, Moody’s senior credit officer Dietmar Hornung said a resolution of the bank debt would be “credit positive”, but would not automatically lead to an upgrade.

Minister for Finance Michael Noonan has been pushing for a deal to review Ireland’s banking rescue, which have loaded the State with an extra €64 billion in debt. The Government is seeking revised terms for the bailout payments to the Troika, but a deal has yet to be reached.

Earlier this week, Mr Noonan downplayed the prospect of striking an agreement this month, pointing instead to dates next year in relation to the Anglo Irish Bank promissory note scheme and the use of the European Stability Mechanism fund to rescue AIB and Bank of Ireland. A €3 billion payment is due in March next year.

But Mr Hornung also commented that the country’s weak economic outlook remains a concern. Domestic demand remains weak, and economic growth forecasts have been revised slightly lower in recent weeks.

“There are many different elements which we are monitoring, including the economic outlook, the fiscal outlook, a possible resolution of some issues in the banking sector, and regaining market access on a sustained basis,” he said. “It is not one dimensional.”

The analyst told the Wall Street Journal that external factors, such as the euro zone crisis, posed a risk to Government plans to return to the debt markets. Euro zone measures to support the country and use the ESM to recapitalise banks “would certainly be a credit positive for Ireland.”

“But we are monitoring discussions at EU level here, and it is too early to anticipate what kind of solution European policy makers will eventually agree on,” he said.

“There is an awareness with policy makers that a linkage between sovereign and banking systems is an issue.

“There is an awareness, but how it will be specifically addressed remains to be seen.”

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