Ireland’s Credit Rating Upgraded at S&P

Ireland’s credit rating was upgraded one level by Standard & Poor’s, which said the strengthening economy will help the government reduce its debt.

The rating was raised to A- from BBB+ with a positive outlook. That means there’s at least a one-in-three chance of another upgrade in the next two years, S&P said in a statement today. Ireland is still six levels below the top AAA grade.

S&P is the first of the three main ratings companies to put Ireland on an A rating after it exited a three-year international bailout in December. It was restored to investment grade by Moody’s Investors Service in January. The economy will expand 1.9 percent this year and 2.2 percent in 2015, according to the Organization for Economic Cooperation and Development.

There are “brightening prospects for Ireland’s domestic economy, which we expect to underpin further improvements in the government’s financial profile, capital markets access, and financial system asset quality,” S&P said.

Ireland’s budget deficit narrowed to 3.5 billion euros ($4.8 billion) in the first five months of the year from 5.3 billion euros from a year earlier. The government is seeking to reduce the deficit to 3 percent of gross domestic product next year from 11 percent in 2011. Moody’s currently has Ireland on a Baa1 rating, while it’s BBB+ at Fitch.

Ireland’s 10-year bond yield fell to a record-low 2.438 percent today, compared with a euro-era peak of more than 14 percent in 2011.

Ratings Impact

To an extent, investors look beyond ratings companies. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and S&P suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.

S&P’s move “highlights the continued improvement in Ireland’s creditworthiness,” Finance Minister Michael Noonan said. “I am particularly pleased that this upgrade is being driven by S&P’s view on the improved prospects for the domestic economy.”

S&P raised its 2014-2016 average real GDP growth projections for Ireland to 2.7 percent from 2 percent. It said net general government debt probably peaked at 127 percent of GDP in 2013 and will decline to 112 percent by 2017.

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