Bond markets reacted positively yesterday to the Government’s deal on promissory notes, but ratings agencies have so far made no formal move to upgrade their view on Irish debt.
Expectations are now growing that the NTMA, the body charged with managing the State’s funding, will imminently seek to tap into the favourable mood by issuing a new 10-year bond.
Such an issue, if successful, would place considerable pressure on ratings agencies to reconsider their position on Irish debt. This in turn would ease the State’s path towards a full return to bond markets and exit of the bailout.
The NTMA declined to comment yesterday.
Fitch, one of the three main such agencies, said that while the promissory note deal was “a positive surprise” it did not sufficiently affect the dynamics of Irish debt to change its analysts’ assessment “in the short run”.
The agency said risks it had previously highlighted, such as the weak outlook for economic growth, remained in place.
Fellow agency Moody’s noted on Thursday that the deal was a “credit positive” for Irish debt, but again stopped short of a move on its rating. Standard Poor’s, the third prominent ratings agency, made no move aside from saying it was withdrawing its rating on IBRC upon its liquidation.
Five-year bonds
Feedback came more quickly on the markets, with yields on Irish five-year bonds falling to their lowest level in more than seven years. The fall, of 10 basis points, or 0.1 percentage point, to 2.81 per cent, came in the wake of steady declines in Irish bond yields over recent months.
Anthony Childs, a bond specialist at stockbroking firm Davy, said the promissory note agreement made a 10-year issue from the NTMA “much more viable at attractive levels”. He suggested that such an issue could be priced roughly between 4.25 and 4.4 per cent and would attract “huge demand”. The Republic does not have a 10-year bond in issue at the moment.
“We’ve definitely punched into new territory,” Mr Childs said of the reaction to the Project Red deal.
Owen Callan, a fixed income dealer at Danske Bank Markets, said the NTMA could move to issue debt within three to four weeks, which would improve the chances of an upgrade from ratings agencies.
He noted, however, that agencies were “a bit like supertankers” in that it takes a long time for them to turn around.
