Ireland’s rating was raised for the second time in less than six months by Moody’s Investors Service as the economy stabilizes and concern that the euro-region may be under threat eases.
Moody’s raised its ranking two levels to Baa1 from Baa3, the ratings company said May 16 in a statement. Six of nine analysts and economists surveyed by Bloomberg News predicted an upgrade. The outlook is stable, Moody’s said.
“The recent pick-up in Ireland’s growth momentum will speed up ongoing fiscal consolidation and put the government’s debt metrics on a steeper downward path than previously anticipated,” Moody’s said.
Moody’s is upgrading its view as Irish employment grows, the government deficit narrows and the wider crisis which threatened the euro-region’s future eases. The ratings company this month raised Portugal’s rating, and in January, restored Ireland to investment grade.
“The ratings change reflects a lot of the hard work that’s been accomplished across the economy,” said Philip O’Sullivan, an economist at Investec Plc in Dublin. The “development will provide a further lift to the Irish sovereign and bank bonds on Monday.”
To an extent, investors, who often ignore rating changes, have already upgraded their view of Ireland, reflecting European Central Bank President Mario Draghi’s 2012 pledge to do “whatever it takes” to defend the euro.
This month, the country’s borrowing costs fell below the U.K.’s for the first time in more than five years even as the Irish government grapples with sluggish consumer spending and delinquent mortgages. Moody’s sovereign rating on the U.K. is Aa1.
Irish mortgage loans in arrears by more than three months rose to a record 18.4 percent in the first quarter, Fitch Ratings said on May 14.
“Some investors may scratch their head about valuations for Ireland,” Rainer Guntermann and David Schnautz, analysts with Commerzbank AG, wrote in a May 12 note to clients before Moody’s decision, adding the economic backdrop was “mixed.”
The yield on Ireland’s 10-year benchmark government bond has fallen more than 70 basis points over the last 12 months to 2.68 percent.