Moody’s Investors Service (MCO) on Monday downgraded Ireland’s government bond ratings by one notch to Aa2, reflecting its view of the country’s near-term credit fundamentals.
Moody’s one-notch drop came after the rating agency said expects Ireland’s debt to stabilize at between 95% and 100% of GDP over the next two to three years. Ireland government’s debt rose to more than 60% of GDP at the end of last fiscal year from 25% of GDP before the financial crisis.
“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” said Dietmar Hornung, a senior credit officer at Moody’s.
Moody’s also changed its outlook on the country’s economic conditions to stable from negative and said it expected economic growth of 2-3% per year from 2011, below the 4% forecast built into the government’s fiscal program.
Yields on the benchmark 10-year Irish bond rose 9 bpt in reaction to the downgrade. Ireland plans to sell up to €1.5 billion of bonds maturing in 2016 and 2020 on Tuesday.
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