Irish bonds gain on Moody’s rating upgrade

The Irish government bonds strengthened on Monday after Moody's upgraded the country's credit rating to A3 from Baa1. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 3bps to 0.792 pct and the yield on 2-year bonds dipped 1bps to -0.342 pct by 0950 GMT.

Moody’s increased the long-term debt instruments ratings one indent from Baa1 to A3 and reaffirmed a positive outlook. Notwithstanding apprehensions over the implications for Ireland of a Brexit, 10-year bond yields were at a one-month low last week an anticipation of such a move.

“The upgrade by Moody’s expands the range of potential buyers of Irish bonds. Some investors, particularly in Asia require a minimum A grade from all of the three big agencies,” said Ryan McGrath strategist at Cantor Fitzgerald to Reuters.

Moreover, the Irish economy grew by 7.8 pct last year, making it the fastest growing economy in the European Union for a second straight year and it is anticipated to expand by close to 5 pct this year to remain the best performing economy in the European Union for a third successive year. Moreover, this growth should cut Ireland's gross debt below 90 pct of gross domestic product (GDP) by the end of the year, the country's Finance Ministry has predicted.

Also, rising worries about the up-coming June referendum shifted investors towards safe-haven assets as Britain is one of Ireland's biggest trading partners and a vote to leave the European Union is a risk for the Irish economy. According to latest British Chambers of Commerce's (BCC) survey, conducted last month concluded that there is growing support amongst its members for a ‘Brexit’. They mentioned that its members to vote for Brexit increased to 37 pct, from 30 pct in the late January survey. Similarly, members in favour to stay in European Union fell to 54 pct, from 60 pct in the previous survey.

On the contrary, the Moody’s in its rating report said that there would be negative effects from Brexit, but will be manageable. Ireland will continue to grow at above-trend rates over the next 2-3 years, on account of strong and sustained competitiveness gains and the large and expanding presence of high value-added multinational firms that have driven recent increases in exports, they added.

Meanwhile, the Irish Stock Exchange Overall Index (ISEQ) fell 0.08 pct to 6,117.55 by 0950 GMT.