Investors will not buy Irish bonds, says ex-NTMA chief
Published 07/02/2012 | 05:00
BOND analysts yesterday dismissed claims by former National Treasury Management Agency (NTMA) chief Michael Somers that investors will not buy Irish bonds because of a low credit rating.
Mr Somers said the country was likely to need a second bailout, because credit rating agencies had cut the Government's rating to a status that was too low to be able to sell bonds to international investors.
Rating agencies 'rate' or classify internationally traded bonds according to how risky they believe the IOUs to be.
Moody's agency currently classes Irish government bonds as 'sub-investment grade', known as 'junk bonds'.
Mr Somers said that made it impossible for the country to return to normal financing and escape a second bailout.
He made the comments on Newstalk radio's Breakfast Show. "When we had money we would have been under instructions not to invest in 'junk', we would not have touched something like where we are now," he told the radio show.
Mr Somers's comments are sure to be an embarrassment to the Government.
As head of the NTMA until 2009 he was in charge of managing the national debt, including selling government bonds to international investors.
He remains a senior figure in Irish finance and is currently the deputy chairman of state-owned AIB.
The NTMA would only invest in debt with the top 'AAA' or 'AA' rating, he said.
Mr Somers is the latest senior figure to warn that a second bailout could be on the cards. Last month, Citigroup chief economist Willem Buiter said the Government should prepare in advance for a new bailout.
However, bond market analysts said last night that the ratings cut was not a make or break issue.
"I don't really know why he would say that now. Things are actually looking up for Ireland. When he was in charge, the landscape was entirely different, ratings for government bonds are just lower now," said Brian Barry, of Evolution Securities in London, an adviser to bond investors.
Over the last 12 months, both the US and France lost their top credit rating, and most euro-area countries suffered rating downgrades.
Mr Barry said two of the three main rating agencies still regarded Irish debt as "investment grade," a crucial difference compared to Portugal.
"Ireland was lucky to keep its investment grade ratings, once it's been lost it gets very hard to win back," he said
Borrowing costs for the State fell in the markets yesterday. It continues a month-long trend as investors believe the likelihood of Ireland defaulting has receded and because the ECB has pumped low-cost money into euro-area banks.