Ireland’s credit rating may be cut to junk by Moody’s Investors Service after Portugal yesterday lost its investment grade rating, according to analysts.
Moody, which slashed Portugal to Ba2 from Baa1, in April lowered Ireland’s credit rating to the lowest investment grade Baa3 and left country’s outlook on negative.
The ratings company cut Portugal’s rating in part because the nation may not be able to return to debt markets in the second half of 2013. Ireland has been locked out of markets since September, and the yield on 10-year Irish bonds climbed to 12.44 percent today, a euro-area record for the country that agreed to a rescue package with the European Union and International Monetary Fund last November.
“If not re-entering the public funding markets has significance for a sovereign’s rating, then clearly if our view proves correct, then Ireland will suffer an imminent downgrade,” Cathal O’Leary, head of fixed income sales at Dublin-based NCB Stockbrokers, said in a note today.
The yield on Irish two-year notes climbed 239 basis points to 15.27 percent as of 2:35 p.m. in London, the first time it has been above 15 percent.
The downgrade of Portugal highlighted “contagion risks” for Ireland,Goodbody Stockbrokers said today. Moody’s said potential investor involvement in a new Greek bailout makes it more likely the EU will require creditors to eventually contribute to aiding the Portuguese.
Portugal joined Greece as the second euro country rated non-investment grade by Moody’s, which suggested the government may struggle to meet the terms of its bailout.