State borrows at record low ahead of rating update
Published 13/05/2016 | 02:30
The last major credit rating agency not to class Irish Government debt in the top "A" rated class of least risky investments is due to update its stance today.
Bondholders have already effectively upgraded the bonds, demonstrated by historically low borrowing costs but Moody's may now hold the Irish rating at Baa1 pending the outcome of next month's UK referendum on European Union membership.
Yesterday, the National Treasury Management Agency (NTMA) borrowed €750m on the markets at an interest rate of just 0.157pc a year for six years, a new record low.
Borrowing costs have become distorted as a result of central bank actions, however, with much of the latest debt likely to end up in the hands of the ECB, which is now by far the biggest holder of Irish official bonds with about €11bn of the assets on its books bought under so-called quantitative easing (QE).
The latest deal means the NTMA has raised €5.5bn of its target to borrow between €6bn and €11bn on the markets this year. Much of that was to refinance debts falling due.
The Minister for Finance, Michael Noonan, said the latest deal highlighted confidence in the new administration.
"The fact that the Irish Government can sell six-year paper with a yield of one sixth of 1pc is noteworthy," Mr Noonan said.
"This shows that there is no market concern about the new Government or about the Programme for Government, which was published before the auction took place." But analysts think Moody's is likely to hold off on a ratings upgrade until September, despite the success in forming a government over the past two weeks - even if the return to an A grade now looks inevitable.
"Our base case remains that Moody's will upgrade Ireland to A3 either tomorrow or on September 16th, with the latter seen as more likely," said Ryan McGrath, head of fixed income strategy at brokers Cantor Fitzgerald.
Strong growth, a swift reduction in the relative size of the national debt and stability in overall policy terms since the election - including the commitment to remain within EU fiscal rules - all point to an Irish upgrade, but Brexit fears may well delay the move.