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Moody’s Says Ireland ‘Rightly Positioned’ at Junk Rating

Moody’s Investors Service said Ireland’s credit rating is “rightly positioned” at non-investment grade even after the country returned to international bond markets last month.

Moody’s cut Ireland’s credit rating to Ba1, the highest non-investment rating, from Baa3 in July 2011, and kept the outlook on “negative.”

“Ba1 is a non-investment grade rating, and the negative outlook reflects that we see the risks skewed to the downside,” said Dietmar Hornung, a Moody’s credit analyst, said in a phone interview today. “Ireland is rightly positioned at the Ba1 rating level.”

After almost two years, Ireland returned to long-term debt markets on July 26 by selling 4.2 billion euros ($5.2 billion) of bonds. While the debt sale was “reassuring,” the country’s economic outlook has deteriorated since the last rating action, Hornung said.

“It looks like there will be no imminent re-rating of Irish risk by Moody’s,” said Owen Callan, a Dublin-based fixed income analyst at Danske Bank A/S, in a note.

The yield on Irish October 2020 bonds declined 4 basis points to 6.06 percent today. The rate was at 7.11 percent on June 28, and exceeded 14 percent about a year ago.

Growth Misses

Moody’s expects the Irish economy to grow by 0.2 percent this year and 1.5 percent next year, according to Hornung. Ireland’s finance ministry forecasts the economy will expand by 0.7 percent in 2012.

“Some things are improving, others are deteriorating,” Hornung said. “Economic growth has been below expectations.”

Standard & Poor’s affirmed Ireland’s credit rating at BBB+ on Aug. 2, three levels above junk, saying the country is making progress toward full market access.

Ireland’s National Treasury Management Agency said last month it is considering further debt swaps and short-term debt sales as it seeks to avoid a second bailout when the country’s current program runs out at the end of next year.

A follow-up assistance program for Ireland remains an option for the country, according to Hornung. Ireland sought a 67.5 billion-euro international bailout in 2010.

“We understand it is an option for policymakers to seek a follow-up program, potentially more in a precautionary sense,” Hornung said. “For a country to re-access the market obviously the availability of a backstop would be positive.”

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