Moody’s Set to Upgrade Ireland For Second Time This Year

Ireland’s rating will probably be 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 will raise its ranking to Baa2 from Baa3 tomorrow, when the ratings company is scheduled to deliver its latest verdict on the country, according to six of nine analysts and economists surveyed by Bloomberg News. Three predict no change, the survey shows.

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 passes. The ratings company restored Ireland’s investment-grade rating in January and last week raised Portugal’s rating.

“We’ll go for an upgrade in rating this week given the generally bullish view Moody’s seem to have right now on the euro zone,” said Owen Callan, a Danske Bank A/S analyst in Dublin, who was one of two analysts among 11 surveyed in January to predict an Irish upgrade.

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.

Last week, 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.

Mortgage Arrears

Irish mortgage loans in arrears by more than three months rose to a record 18.4 percent in the first quarter, Fitch Ratings said this week.

“Some investors may scratch their head about valuations for Ireland,” Rainer Guntermann and David Schnautz, analysts with Commerzbank AG, wrote in a note to clients this week, adding the economic backdrop was “mixed.”

The yield on Ireland’s 10-year benchmark government bond has fallen 87 basis points over the last 12 months to 2.64 percent. The spread, or difference, between German bonds of a similar maturity has also fallen 87 basis points to 1.26 percent. Ireland is selling 500 million euros ($684.3 million) of treasury bills today.

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