Moody's Downgrades Ireland From Baa3 To Junk

Tyler Durden's picture

Who would have thought a few years ago that Moody's would be one of the biggest supporters of the gold bulls...

Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative.
 
The key driver for today's rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals.
 
As stated in Moody's recent comment, entitled "Calls for Banks to Share Greek Burden Are Credit Negative for Sovereigns Unable to Access Market Funding" (published on 11 July as part of Moody's Weekly Credit Outlook), the prospect of any form of private sector participation in debt relief is negative for holders of distressed sovereign debt. This is a key factor in Moody's ongoing assessment of debt-burdened euro area sovereigns.
 
Although Moody's acknowledges that Ireland has shown a strong commitment to fiscal consolidation and has, to date, delivered on its programme objectives, the rating agency nevertheless notes that implementation risks remain significant, particularly in light of the continued weakness in the Irish economy.
 
The negative outlook on the ratings of the government of Ireland reflects these significant implementation risks to the country's deficit reduction plan as well as the shift in tone among EU governments towards the conditions under which support to distressed euro area sovereigns will be made available.
 
Despite the increased likelihood of private sector participation, Moody's believes that the euro area will continue to utilise its considerable economic and financial strength in its efforts to restore financial stability and provide financial support to the Irish government. The strength and financial capacity of the euro area is underpinned by the Aaa strength of many of its members including France and Germany, and indicated by Moody's Aaa credit ratings on the European Union, the European Central Bank and the European Financial Stability Facility.
 
Moody's has today also downgraded Ireland's short-term issuer rating by one notch to Non-Prime (commensurate with a Ba1 debt rating) from Prime-3.
 
In a related rating action, Moody's has today downgraded by one notch to Ba1 from Baa3 the long-term rating and to Non-Prime from Prime-3 the short-term rating of Ireland's National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland. The outlook on NAMA's rating remains negative, in line with that of the government's bond ratings.
 

RATIONALE FOR DOWNGRADE
 
The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling -- i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates -- in proportion to the size of the creditors' holdings of debt that are coming due.
 
 Moody's assumption surrounding increased private sector creditor participation is driven by EU policymakers' increasingly clear preference-- as expressed during the negotiations over the refinancing of Greek debt -- for requiring some level of private sector participation given that private investors continue to hold the majority of outstanding debt.
A call for private sector participation in the current round of financing for Greece signals that such pressure is likely to be felt during all future rounds of official financing for other distressed sovereigns, including Ba2-rated Portugal (as Moody's recently stated) as well as Ireland.
 
Although Ireland's Ba1 rating indicates a much lower risk of restructuring than Greece's Caa1 rating, the increased possibility of private sector participation has the effect of further discouraging future private sector lending and increases the likelihood that Ireland will be unable to regain market access on sustainable terms in the near future. This in turn implies that some Irish government bond investors would need to absorb losses. The increased risk of a disorderly and outright payment default or of a disorderly debt restructuring by Greece also increases the risk that Ireland will be unable to regain access to private sector credit.
 
The downward pressure that this creates is mitigated in Ireland's case by the strong commitment of the Irish government to fiscal consolidation and structural reforms, and by its success, so far, in achieving the fiscal adjustment required by the EU/IMF programme. To date, Ireland has met all of its objectives under that programme. In the first half of 2011, the primary balance target was exceeded, with tax revenues on track and lower-than-anticipated government expenditures. However, Moody's cautions that implementation risks related to the overall deficit reduction aims of the three-year programme are still significant, particularly in light of the continuing weakness of domestic demand.
 
 
 
Apart from Ireland's adherence to fiscal consolidation, Moody's also acknowledges the Irish economy's continued competitiveness and business-friendly tax environment. The considerable wage adjustment that occurred in the course of the crisis reflects the Irish labour market's flexibility. Taking Ireland's economic adjustment capacity into account, Moody's expects that, after a period of prolonged retrenchment, Ireland's long-term potential growth prospects remain higher than those of many other advanced nations. While the government's debt-to-GDP burden is expected to be high compared to similarly rated sovereign credits, Ireland has managed elevated levels of indebtedness in the past, and has shown political cohesion while enacting difficult structural adjustments.
 
WHAT COULD CHANGE THE RATING UP/DOWN
 
Moody's would consider a further rating downgrade if the Irish government is unable to meet the targeted fiscal consolidation goals. A further deterioration in the country's economic outlook would also exert downward pressure on the rating, as would further market disruption resulting from a disorderly Greek default.
 
Moody's also notes that upward pressure on the rating could develop if the government's continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government's financial strength.

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bania's picture

Just downgrade it to Juncker and be done with it!

The Axe's picture

Hey...I resemble that remark

kaiten's picture

Mhmm, so they downgraded Ireland now, because she could need more financial aid in 2013. Yeah, that makes a lot sense to me ...

Just more euro-bashing to push euro down(and dollar up), so that the QE3 could commence.

Sudden Debt's picture

It's to late for Ireland. QE3 won't make it in time. They're toast.

They'll default in 1 to 3 months.

check out their 10yr.

http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

13.3%

Just waint untill tomorrows markets will open. Even the Chinese Knights won't be able to save that maiden.

 

kaiten's picture

Ireland is financed through EFSF, who cares about 10yr yield? it´s just statistics

Sudden Debt's picture

Actually...

your right...

But the stock market doesn't :)

In 12 hours, when the european markets open, we'll know for sure.

magpie's picture

So how many liras does the EFSF need for bella Italia ?

Funny that i experienced day-on-day 40 % inflation at the bakers today, so i am prepared for everything.

kaiten's picture

Italy doesnt need any EFSF financing. When QE3 begins, all Italy´s "troubles" will be forgotten.

Italy´s budget deficit for this year: 3,9% (of GDP)

US budget deficit for this year: 10% (of GDP)

kaiten's picture

The irish 10y yield is above 10% for some time already. I dont think the "market" will suddendly start noticing any more than before :) But as you said, we´ll see tomorrow.

r101958's picture

No, they downgraded Ireland to prop up the delusion here in the U.S. and to make treasuries more attractive.

Ghordius's picture

The Italian Show not interesting enough?

Atomizer's picture

Uh no, they've got me lucky charms.

SheepDog-One's picture

Dang, time to fire up the printing presses obviously! QE is the answer, cant these people observe what The Great Bernank has done to such great success?

Excuse me, I gotta go buy me some bubble stawks...I got a hankerin.

Cdad's picture

Europe is fixed...Europe isn't fixed...Europe is fixed...Europe isn't fixed.

And all the while, the presumed direction of the "stawk" market is up.

What a joke.  Banker desperation rising....

youngman's picture

Its the "I" week...Italy and Ireland...next week is P week....Portugal....then S...Spain...then U..USA..then back to G..Greece

Sudden Debt's picture

No black swan untill then?

 

treemagnet's picture

"Junk" is such a harsh word.  They should use something more like "Dubious".

hambone's picture

"ambiguous"

or maybe

"shit out of luck"

fockewulf190's picture

"ain´t worth a shit" may be more lke it.

Stuart's picture

Sure, pick on the little guys.   Given their complicity in the MBS fiasco, the fact that people still act on their ratings is astounding.   In any event, one wonders if S&P, Moodys etc... would be so pressured by Geithner et al, to keep the market and media focus on Europe, downgrade them..do anything, just keep the bond market over there rattled so that enough scared ants make their way over here, ensuring Uncle Sam gets his fill of Treasury bids.  That would be a little too cynical, right?   No one would ever orchestrate anything like that.   Amazing Italy is up now, just when there's a pending budget battle in Washington.... amazing timing, always.

 

 

sabra1's picture

am sure that china now owns enough european debt to do likewise to the U.S.!

vote_libertarian_party's picture

Isn't 'junk' good?  Like the Black Eyed Peas song?

 

 

camoes's picture

Nobody wants to touch this junk....except for TSA, they love to touch and fondle junk and smell used diapers

etrader's picture

Moodys may as well down grade RBS , LYG  & the UK while their at it....

golfrattt's picture

Who's left to downgrade, anyway..??

Somalia, Monaco maybe...??

zorba THE GREEK's picture

 It seems me that negative events are occurring at a much faster pace now than just a few weeks ago.

 At this rate the whole Ponzi could unravel this summer. I was really hoping we could make it to the fall.

 It seemed more fitting that "the fall" would happen in the fall. 

MisterMousePotato's picture

I, too, have been sensing a quickening. The last week, and especially yesterday, I just felt like things were teetering, barely staying upright. Today, not quite so much, but there was really something about yesterday that made me think, "This time, it's different."

traderjoe's picture

As if the Ponzi survives until 2013...normalcy bias...

I bet we have bank holidays before then...

swissinv's picture

probability mood(ys) tree:

 

EU    ------ unchanged

 -----

        ------ downgrade

 

US    ------ upgrade

 -----

        ------ unchanged

 

 

zebra's picture

junk everyone and DJI goes to 20000

r101958's picture

correction: 'junk everyone else'

Helena Bonham-Carter's picture

Robes and furr'd gowns hide all. Plate sin with gold,

And the strong lance of justice hurtless breaks;

Arm it in rags, a pygmy's straw does pierce it.

caerus's picture

Hear, hear!

 

A statesman is an easy man, he tells his lies by rote.  A journalist invents his lies, and rams them down your throat.  So stay at home and drink your beer and let the neighbors vote.

- W.B. Yeats


the not so mighty maximiza's picture

Reggie downgraded to junk weeks ago.

sabra1's picture

OT:

WASHINGTON – China secured its first top-level management post in the International Monetary Fund on Tuesday, in a move that recognizes Beijing’s growing clout in the global economy.

New IMF Managing Director Christine Lagarde named Chinese economist Min Zhu, a former deputy governor of the People’s Bank of China and a special adviser to the fund, to a newly-created deputy managing director post.

She also said White House adviser David Lipton will succeed John Lipsky when he steps down as the fund’s No. 2 official at the end of August.

Watts_D_Matter's picture

I would say Ireland should be rated....Drunk

Strider52's picture

I can definitely say Ireland should be rated "Expensive". I just got back from Ireland a week ago. Prices have tripled in some places - and don't even bother to rent a car - they will rip you off terribly. Bring a camcorder and film the entire transaction with the car rental company, or face a bunch of charges you later have to have removed. Use an Amex card and you can have the bogus charges removed easily.

 Lodging, food, transpo - everything is geared to take the tourist to the cleaners. They are broke. I saw one place, not even in an airport, that featured a cheesburger, chips (fries) and a coke - for 13 Euros. That's over $18 US.

  We won't be going back for a while, if ever. But hey, 4 times is enough, right?

Dreadker's picture

Its not expensive.... Its just the dollar ain't worth crap anymore lol

Herbert_guthrie's picture

If ever my flow of Guinness is cut off, my real "depression" begins.....

Grimbert's picture

Ireland has always been expensive - I have always paid 30-50% more for beer in Dublin than in England, and I've been going regularly for the last 20 years.

 

If anything over the last 2 years prices have fallen as imports from the UK have become cheaper and the Irish have had pay cuts

 

 

redguard's picture

Strider, what month and year is your avatar. Thanx

dcb's picture

I am sorry, that is not correct, as every central banker will tell you a country can't have inflation with an output gap and high unemployment. (JUst kidding I hate when they say such stupid crap that isn't true over and over again). krugman as well!!!

EFNuttin's picture

Interviewed an Irishman recently here in the USA.  After years of working outside of Ireland, the Celtic Tiger phase had enabled all six siblings to come home and work near their parents.  Due to the Crash, the diaspora is on again and this bloke is desperate to escape Ireland and so long to the family.  

Guinness is too dear for me to hoist it these days.  Lord, just give me one more boom and I swear I won't blow it this time.

DonutBoy's picture

Iceland is the model.  Banks or citiziens, pick one.

Herbert_guthrie's picture

Maybe if they would have chose "banks", the volcanoes would not have got so pissed off.

Archimedes's picture

We seem to always bash the leaders of these countries and always talk about how the people suffer by their actions that cater to the bankers.

But didn't the people elect these corrupt officials? Didn't the sheeple (Sorry, I mean people) allow leader after leader to slowly take away all of their wealth and give it to the financial elite?

Did the Irish people not vote out a Political Party a few months ago and vote for a party that was against the bailouts? And once that said Party was voted into office they turned around and accepted the bailouts! Yet not one politician was injured, killed, fire bombed, house burnt to the ground etc. The people just bent over and took it.

You get the Government you vote for. Stupid people have been led to the slaughter for 1,000's of years and today is no different. This is not just for Ireland but the entire Western World.

Fortunately there are a few smart people who read Zero Hedge and other truth organizations and can prepare.

Over the past four years I have felt like that Children's Fable Aesop "The Ant and the Grasshopper". I have steadily been accumulated for the long hard Winter ahead while the Grasshopper frolic. Time will tell....