Ireland attacks Moody’s rating cut as bond yields jump

The Irish government yesterday attacked a decision by Moody’s rating agency to downgrade its bonds to junk status, as borrowing costs hit the highest levels since Ireland joined the eurozone.

Moody’s said late on Tuesday it was cutting government debt ratings by one notch, to speculative status of Ba1 from Baa3, saying there was a “growing possibility” that the country will need another bailout in 2013 when the EU/IMF support programme ends.

In morning trading, the yields on 10-year Irish debt bonds jumped to 13.339 per cent from 13.074 per cent late on Tuesday, before the downgrade.

The Irish Department of Finance said “that Ireland’s rating with all of the other major agencies – Standard & Poor’s, Fitch and DBRS – remains within the investment grade band.”

“This is a disappointing development and it is completely at odds with the recent views of other rating agencies.

“Just last week, Fitch & DBRS noted our economy’s return to growth in the first quarter, the progress in reducing our budget deficit and said that there was no reason to alter their views on Ireland at this time.”

The agency’s move came amid mounting sentiment that Greece could default on its debt despite a massive EU-IMF rescue. EU governments were scrambling to fight debt contagion choking Italy and Spain and endangering the euro.

Irish Enterprise Minister Richard Bruton told RTE state broadcaster that the move was “frustrating and makes our job more difficult.”

He said: “The important thing to point out is that it doesn’t reflect in any way a failure of government to meet its obligations or any downgrade in the state of the Irish economy.

“What it reflects is uncertainty that has emerged as a result of different options that have been considered in Europe.”

Moody’s also cited the “increasing possibility” that private sector holders of Irish debt will have to take part in any talks on a second rescue program in line with recent EU government proposals.

“The outlook on the ratings remains negative,” the US-based international firm said.