Moody's eases pressure with no change for Ireland
But Greek downgrade puts spotlight on EU debt crisis plans
MOODY'S signalled that another rating cut for Irish bonds is not imminent after slashing Greece's credit rating by three notches yesterday and raising the spectre that Greece may be forced to default.
The comments early yesterday afternoon relieved pressure on Irish bonds which had fallen to their lowest level since before the euro's creation in 1999, as the markets reacted to Chancellor Angela Merkel's rejection of Enda Kenny's demands for cheaper loans on Friday evening.
The yield on 10-year Irish bonds hit a record 9.48pc before falling again in the afternoon.
Moody's cut Ireland's rating by five notches to Baa1 in December and put the country on negative outlook, meaning more downgrades could follow. Fine Gael and Labour said on Sunday that retaining and improving the country's credit rating would be a priority.
"We are currently monitoring how things develop in Ireland and we will act when deemed appropriate," Dietmar Hornung, vice president and senior credit officer at Moody's, told Reuters. Mr Hornung said he would assess the impact of any concessions Ireland might be able to win from Europe but said he did not expect the overall targets in the EU/IMF deal to be altered.
Exchequer figures came in below target last month but Mr Hornung said it was too early to say whether the new Government would miss its fiscal target this year.
Moody's meanwhile slashed Greece's credit rating on fears the country's efforts to cut its debts would fall short, heaping further pressure on EU leaders to ease its repayment terms as part of an EU-wide solution for the region's debt crisis.
"The Greek downgrade certainly refocuses the market's attention on the sovereign debt problems in Europe," said Elwin de Groot, an economist at Rabobank in the Netherlands.
"The rise in the yields of these countries really underlines the risk that there might be more downgrades on the way. We're slowly creeping towards the endgame for Portugal."
Moody's said it may cut Greece's rating further, citing significant risks to the government's fiscal consolidation programme from a revenue shortfall and difficulties in reforming healthcare and state-owned companies.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that "no options should be off the table" in the discussion about bolstering the European Financial Stability Facility.
The downgrade sent a ripple of concern around credit markets, raising the price of insuring Greek, Portuguese and Spanish debt.
Moody's was the first of the three major ratings agencies to classify Greek debt as "highly speculative", rating it lower than Egypt, and drew an indignant protest from Athens.
The Greek Finance Ministry said Moody's had ignored progress, including an improvement in revenue collection.
"Decisions such as Moody's today can initiate damaging self-fulfilling prophecies," it said. (Additional reporting Reuters and Bloomberg)