RATINGS AGENCY DBRS has downgraded Ireland’s debt due to what it says are the country’s “weaker than expected” growth prospects.
The downgrade comes six weeks after the Toronto-based rating agency said it was unlikely to change the State’s rating. Its most senior sovereign analyst on July 7th said Ireland’s “A” rating was unlikely to be changed.
Yesterday the agency said slower growth in the US and Europe could dampen Ireland’s prospects for recovery, given its dependence on exports.
It downgraded Ireland’s long-term foreign and local currency debt to “A (low)” from “A”. The trend on both types of debt ratings remains negative.
DBRS is one of four rating agencies considered by the European Central Bank (ECB) in deciding which bonds can be used as collateral in its lending operations. Since the agency’s rating for Ireland is still higher than that of Moody’s, Standard and Poor’s and Fitch, the Republic will be able to avoid an ECB penalty charge when borrowing and using bonds as collateral.
DBRS flagged the downward shift just after European stock markets closed at their highest level in almost two weeks yesterday, as a strong opening on Wall Street helped to offset investor disappointment at Tuesday’s Franco-German summit.
European markets had a choppy session, opening lower as the outcome of Tuesday’s crisis talks failed to appease investor nerves.
However, they moved into positive territory later in the day, helped by better than expected corporate results from US retailers.
Wall Street moved in the opposite direction, with early gains erased by a downturn in technology stocks sparked by weak results issued by Dell after US markets closed on Tuesday.
The sharp turn in US markets came after European equities closed at their highest level since August 5th. The FTSEurofirst 300 index ended 0.3 per cent firmer at 971.87. The Iseq index finished more than 1 per cent ahead, while France’s CAC index had gained 0.7 per cent.
The UK’s FTSE 100 index was 0.5 per cent down, and Germany’s DAX had fallen 0.8 per cent.
By early afternoon in the US, the Dow Jones industrial average was down 34.21 points, or 0.30 per cent, at 11,371.72.
The turn in sentiment was marked by a sharp reversal in the US treasury market, where prices for the benchmark 10-year note shot up, pushing its yield down to 2.18 per cent. Gold prices also reversed course and turned lower. Spot gold prices fell 20 cents to $1,784.80 an ounce.
The US dollar, meanwhile, dropped across the board, hurt by sharp losses against the Swiss franc, which strengthened even after the Swiss National Bank announced measures to halt the currency’s steady appreciation.
The euro tumbled more than 2 per cent against the franc in volatile trade to hit a low of 1.12248 francs, as safe-haven demand for the Swiss currency resumed.
The dollar fell against a basket of major currencies, with the US Dollar Index off 0.42 per cent at 73.696. Oil jumped to above $111 a barrel, the highest in almost two weeks, on a larger than expected decline in US gasoline supplies.
Spanish and Italian 10-year bond yields hovered below where they stood before the ECB first intervened in the markets earlier this month. – (Additional reporting Reuters)
