THE GOVERNMENT’S recent bond sales have added to the country’s positive momentum but market confidence remained “extremely fragile” and a deepening of the euro zone crisis could block Ireland’s full return to markets, according to ratings agency Fitch.
The agency does not expect losses to be imposed on sovereign bondholders if the State is unable to regain access to the bond markets in the near future. “Should Ireland fail to fully regain access to the bond markets in the short term, we expect official creditors to extend fresh financing without bondholder ‘bail-in’ because Ireland’s programme has stayed broadly on track.”
It said plans to issue sovereign annuity bonds improved the flexibility to borrow but it was still uncertain what degree of market access could be maintained when the EU-IMF bailout programme expired at the end of next year.
It said there would be increased demand for Irish sovereign bonds from pension firms because the yields the country was paying made them attractive.
Annuity bonds pay a steady flow of principal and interest linked to sovereign yields for up to 35 years.
The National Treasury Management Agency has said it expects to raise between €3 billion and €5 billion over the next 18 months from sovereign annuity and inflation-linked bonds.
Fitch, which has Ireland rated at investment grade of BBB+, said international investors accounted for 66 per cent of the recent bond swap and the sale of a new five-year bond and tapping of existing eight-year bonds.
The Government raised €4.2 billion of new money on the debt exchange in a surprise return to the bond markets and the first borrowing on longer-dated bonds since September 2010 and the bailout programme.
Fitch said Ireland’s credit rating and negative outlook, meaning a further downgrade is possible, reflected the fiscal deficit and the country’s vulnerability as an export-driven economy to a deterioration in the euro crisis.
“This contagion could come through worsening economic growth and falling demand for its debt.”
