Moody's downgrade 'disappointing and excessive' - Cowen

Sat, Dec 18, 2010, 00:00

IRISH GOVERNMENT bonds declined as international rating agency Moody’s cut Ireland’s credit rating by five notches in a move described by Taoiseach Brian Cowen as “disappointing and a bit excessive”.

Moody’s became the latest agency to downgrade Ireland when it lowered it five levels to Baa1 from Aa2 yesterday, and warned it may cut the rating further as the Republic struggles to contain bank losses.

The agency based its rating on an assessment that sovereign creditworthiness has suffered from the mounting bank liabilities on the Government’s balance sheet.

This downgrade follows Fitch’s move last week to strip Ireland of its A credit status, cutting it by three notches to BBB+. However, the outlook on Fitch’s rating was stable, whereas Moody’s yesterday issued a negative outlook.

Notwithstanding Moody’s rating, the Taoiseach contended the “real economy” of Ireland was stabilising and improving. He listed the successful passage of the Budget; revenues being € 470 million ahead of profile; the annual deficit hitting the 11 per cent prediction; the 13 per cent increase in exports, as well as the first evidence of growth in both GDP and GNP since 2007. Christopher Rieger, a fixed-income strategist at Commerzbank AG in Frankfurt, said Irish debt’s investor base “looks at risk of eroding further, with market participants becoming uneasy”.

“The Irish Government’s financial strength could decline further if economic growth were to be weaker than currently projected or the cost of stabilising the banking system turn out to be higher than currently forecast,” Moody’s said yesterday.

The yield on Irish 10-year Government bonds rose to 843 basis points yesterday, from 827 basis points. The yield premium, or spread, between Irish 10-year bonds and the German equivalent, Europe’s benchmark, rose 19 basis points to 540 basis points today. – (Additional reporting Bloomberg)