Added by Erik West on July 13, 2011
Moody’s, a credit rating agency specialized in commercial and government entities, lowered Ireland’s credit rating to non-investment-grade, or junk status, on Tuesday.
Ireland’s credit rating, at Ba1, is a result of warnings that the country could need a second bailout. The agency’s rating is amid other concerns about Europe’s ability to handle its debt crisis plus prevent the spread of the crisis. The warnings are related to fears that Greece could default on some payments, which would have a ripple effect on Europe’s banking system.
In a statement, Ireland’s finance ministry said “This is a disappointing development and it is completely at odds with the recent views of other rating agencies”. While agencies like Fitch Ratings and Standard & Poor’s ratings are higher, Moody’s rating is likely to pressure other agencies’ ratings as investors dump Irish bonds since they’re no longer rated as investment-grade by all three major ratings agencies.
Ireland accepted a $119bn bailout (85bn euros) package from the European Union in November 2010. At the time its 10-year bond rate was about 9.5 percent, a level that is considered to be very high. Non-investment-grade bonds usually offer higher yields as compared to investment-grade bonds to make them more attractive to investors as a result of the higher risks usually associated with these types of bonds.
The European Union’s economic growth continues to be sluggish as a number of nations struggle with the increasing costs of debts, forcing them to enact a number of austerity measures that further slow economic growth. The austerity measures reduce tax revenues, reducing the likelihood that debts can be repaid.