Ireland’s rating was facing a further downgrade today after Moody's Investor Service said it has placed Ireland's rating on review.
The country is currently rated at Aa2 by the agency, with the review threatening to bring this down by one notch.
It said the decision was related to increased uncertainty over the Government’s financial strength following additional bank recapitalisation measures announced last week, rising borrowing costs and the outlook for the recovery of domestic demand.
Moody's said the additional measures are likely to raise the government's total cost for bank support by €10-€15 billion, which will lead to a substantial rise in Ireland's general government deficit to around 32 per cent of gross domestic product this year.
Meanwhile, recent data has highlighted weak growth prospects for the economy, and the impact of new austerity measures on domestic demand has increased uncertainty further.
"Taking these three factors into account, Ireland is on a trajectory toward lower debt affordability over the next three to five years," lead sovereign analyst for Ireland Dietmar Hornung said.
He said the revised four-year fiscal plan, which the Government will present in early November, will be a key element of Moody's review.
The agency also said it had put the National Asset Management Agency's Aa2 rating on review for possible downgrade.
Moody's last downgraded Ireland in July, when it downgraded Government bond ratings to Aa2 and assigned a stable outlook.
Irish bond yields were higher this morning, moving above 6.3 per cent to 6.345 per cent by 1.39pm. German 10-year government bond yields were near their lowest level in a month
"The Moody's review has added to the positive sentiment for bunds, but Ireland is on review by the market 24/7," said David Schnautz, a fixed-income strategist at Commerzbank AG in London.
The yield on the 10-year bund was little changed at 2.24 percent at 12.58pm in London. The 2.25 per cent security due in September 2020 traded at 100.06. The yield touched 2.20 per cent on September 30th, the lowest level since September 1st. Two-year yields dropped 2 basis points to 0.81 per cent.
Additional reporting: Bloomberg
