Borrowing costs dip after Moody's upgrade
Irish bond yields dipped yesterday after Moody's lifted the country's rating by two notches, citing strong growth dynamics, which are expected to speed up fiscal consolidation and cut the country's debt.
At around 120pc of GDP, Ireland still has one of the most bloated government debt burdens in the eurozone. But with the economy set to grow at 2pc this year, and further rating upgrades expected, Irish bonds should continue to outperform other indebted states from the bloc's periphery.
"Ireland has come from being one of the weakest countries in the eurozone . . . but now in an upwards rating cycle, Ireland should do better than its current peers," said Peter Schaffrik, head of European rates strategy at RBC.
Moody's upgraded Ireland's credit rating from Baa3 to Baa1 after European markets closed on Friday, bringing its view into line with the other two main ratings agencies.
Standard and Poor's is due to review Ireland's rating on June 6, with many hoping its positive outlook means another upgrade is on the cards. Fitch may then follow suit in mid-August.
The National Treasury Management Agency said yesterday that it had cancelled €650m of a 4.5pc Treasury Bond due to mature next February.
"As part of its normal operations in the secondary bond market, the NTMA has acquired holdings of this short-dated bond, which it has decided to cancel," the agency said.
Ireland's 10-year yields dipped four basis points yesterday to hit 2.65pc, just above last week's record lows. Its bonds outperformed peers in Spain, Italy and Portugal.
The brutal sell-off in Greek bonds at the end of last week appeared to abate yesterday although government instability was still playing on investors' nerves.
Greek 10-year yields dropped after the government appeared to backtrack on a controversial legacy capital gains tax on foreign bondholders.
European elections this week are being closely watched as a gauge of sentiment towards the coalition of Prime Minister Antonis Samaras, which came to power two years ago and holds just a two-seat majority in parliament.
In an ominous sign for markets, Greece's anti-bailout Syriza party performed strongly in the first round of local elections on Sunday. (Reuters)