Ireland downgraded

By Eoin Fahy, Friday, 1st April 2011 | 0 comments
Credit ratings agency S&P has just downgraded Ireland by one notch, to BBB+, and (very importantly) changed the outlook to ‘stable’ from ‘negative’.  All three agencies now rate Ireland at BBB+ or equivalent, that is three notches above non-investment grade.
 
The downgrade was expected, but many people expected the downgrade to be of more than just one notch, and the change to a 'stable' outlook was also a surprise, in my view.
 
The downgrade was because of the new European arrangements agreed last week, whereby sovereign debt restructuring/default is a possible precondition to getting a bailout from Europe, post 2013.
 
The commentary was actually quite positive about the stress tests, describing them as “robust”, and said that the cost of the recapitalisation of the banks is within the range of S&P’s expectations.
 
It also said that the sharp contraction in the economy has reached an end, and that the economy is now set to gradually recover.
 
If a downgrade can ever be seen as 'good' news, this one probably is, due to the positive remarks about the stress tests and the economy, as well as the change to a stable outlook,  
 
The bond market reaction has been muted but positive.  Irish bonds opened stronger this morning after the stress test results were announced yesterday after the close of business, and have held those gains in the wake of the downgrade from S&P.

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