Bond markets respond to Ireland’s new Junk status

Interest rates hit record highs on latest Moody’s rating

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Markets reacted negatively to the decision by the Moody’s agency on Tuesday to downgrade Irish debt to junk status.

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The prospect of another Irish bail-out has increased as bond yields for the crippled economy soared to record highs.

Markets reacted negatively to the decision by the Moody’s agency on Tuesday to downgrade Irish debt to junk status. Ireland is now the third member of the Euro zone to
have its credit rating cut below investment grade.

As Spanish and Italian debt rallied, Irish rates soared in response to the action by the ratings agency.

The yields on two-year Irish money broke through the 20 per cent level yesterday while 10-year paper traded just above 14 per cent.

The new rates represent new records for Irish debt in the Euro era and are also higher than anything seen during the currency crisis of the 1990s.

“Until they sort something out in Europe, yields are just going to keep going up,” one Dublin trader told the Irish Times.

Analysts expect a sell-off of Irish bonds to continue on the markets for many weeks to come.

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“The pressure will be there in the coming weeks,” said Citi analyst Jürgen Michels who explained that the recent downgrade to junk status of Ireland, Greece and Portugal puts pressure on the holders of the bonds of these countries to offload them.

“Ireland’s junk rating will make it difficult to get back into the market. Your investor base is shrinking.

“A second Irish bailout is not an option that could be excluded. It’s now more likely than unlikely.”
Credit-default swaps on Portugal and Ireland have now overtaken Venezuela.

“It shows how extreme the situation is in Europe that it has overtaken Venezuela,” said Jacques Cailloux, chief European economist for Royal Bank of Scotland Group in London.

“Investors have lost confidence that they’ll get their money back in Ireland and Portugal.”

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