Budget 2014, Government debt, NTMA
Trading in Irish Government
debt will be boosted when bond markets open this morning following comments by
credit ratings agency Moody’s on Ireland’s fiscal progress and the State’s
“diminished susceptibility” to being cut off from the financial markets.
However, the National
Treasury Management Agency (NTMA) has criticised Moody’s failure to lift Irish
sovereign debt out of its “junk” status.
Moody’s changed its outlook
on its Ba1 rating of Irish Government bonds from negative to stable, but did
not give Ireland a credit ratings upgrade, in its latest report on Ireland,
issued late on Friday. This prompted the NTMA to say it was “disappointed” that
Moody’s “did not see fit” to take Irish sovereign debt out of junk or
“sub-investment” status, where it has languished since July 2011.
Investment grade
“Market implied” ratings
based on Ireland’s bond market pricing, also published by Moody’s, suggest
Ireland’s overall sovereign rating should be investment grade, the NTMA added
in a statement.
The Ba1 grade, one step
below investment grade, compares with BBB+ rankings by the two other big credit
ratings agencies, Standard and Poor’s and Fitch.
However, certain classes of
investors will only buy sovereign debt if it has been given an investment grade
by all three agencies.
Kristin Lindow, a senior
analyst at Moody’s in New York, told Bloomberg that its outlook report applied
to a 12- to 18-month time horizon, but that Ireland’s credit position would be
continually monitored. “We monitor ratings on an ongoing basis, so they’re not
subject to a specific cycle,” she said.
Moody’s report, which
followed a meeting of its ratings committee last Monday, was published one day
after Ireland officially emerged from recession. In outlining the reasons for
its stable outlook, the agency also said it expected that there would be a
“resumption of growth among Ireland’s major trading partners, particularly the
UK and the euro area, along with continued expansion of the US economy”.
The credit ratings agency
said this would support Irish growth, “relative to its recent lacklustre
performance”.
An update on the health of
the European economy will be published today, when the September purchasing
managers’ indexes for the manufacturing and services sectors are released by
Markit.
The two gauges are expected
to show an expansion in activity, according to a Bloomberg survey of analysts.
However, Fine Gael parliamentary party members were warned last week that the
State may need a second bailout if Ireland’s major export markets suffer fresh
economic slowdowns.
Public debt
Barclays Investment Bank
chief economist Antonio Garcia Pascual told members at a private briefing that
the sustainability of the State’s public debt of 125 per cent of gross domestic
product was at risk if the EU, Britain or the US has to deal with a significant
slowdown over the next two years.
Moody’s has said it expects
that general government debt will level off relative to GDP. But it also
includes the possibility of contagion from economic stresses elsewhere in the
euro zone as a reason why Ireland’s credit rating might falter.
Ireland must make a full and
sustainable return to the money markets when it exits the troika programme,
Minister for Finance Michael Noonan has reiterated. The Minister said Ireland
cannot step out of a bailout and in again “like Lanigan’s ball”.
Meanwhile, former president
of the European Central Bank Jean-Claude Trichet has pre-empted any potential
request to attend the Government’s banking inquiry. He told the Sunday
Independent that the ECB made “collegial” decisions and it should be the
current governor of the Irish Central Bank, Patrick Honohan, who attended,
although Mr Honohan had not been in place during part of the crisis.
Mr Trichet said that “all
our decisions being collegial, the president goes to the European parliament
and the governors of Central Banks go to the national parliaments”.
