Moodys restore Investment Grade Status

dixiefly

Looks like a very positive development....

http://www.breakingnews.ie/business/moodys-upgrades-irish-rating-620111.html

Ratings agency Moody's has restored Ireland’s sovereign credit rating to investment grade and changed its rating outlook to positive from stable.

The agency bumped Ireland's rating from the non-investment or 'junk' level of Ba1 - which it had been since 2011 - to Baa3 (investment grade) with a positive outlook.

In a statement, Moody's said the two main drivers for the upgrade were the growth potential of the Irish economy and the recent exit from the EU/IMF support programme.

"A key positive signal is the faster pace of employment creation, with the unemployment rate having dropped 2.7 percentage points from its Q2 2012 peak," the agency said.

It added that the Government's ability to exit the Troika's bailout programme without a precautionary credit line reflected that its reform agenda "stayed largely on track throughout the programme, despite weaker than expected domestic and external economic conditions".

The upgrade follows a successful auction of Irish 10-year bonds earlier this week - to which Moody's assigned its Baa3 rating - and means that Ireland now enjoys investment-grade status with all three of the main ratings agencies for the first time since July 2011.

Many of the big pension and investment funds were prevented from investing in Irish government debt because it had a junk status. The move is expected to lead to a further reduction in the country’s interest rate.

Tánaiste Eamon Gilmore said that the upgrade was "another signal of confidence in Irish recovery", while Finance Minister Michael Noonan said it "highlights the major improvement in investor sentiment towards Ireland."

Godge

That wasn't expected.

Good news for Irish economy.

Dave!

It's hard to think of a way for the nay-sayers to put a negative spin on this news.

But I'm confident that they will.

Phoebas

Dave! wrote: »

It's hard to think of a way for the nay-sayers to put a negative spin on this news.

But I'm confident that they will.

I'll have a stab at it:
'That's just Moody's and their pals in government inflating the next bubble so that Moodys can get paid to overvalue the new raft of securitised mortgage products that come with it'.

djpbarry

Dave! wrote: »

It's hard to think of a way for the nay-sayers to put a negative spin on this news.

Disclaimer: This is a questioning of the ratings agencies, rather than "negative spin".

Is it not reasonable to be somewhat sceptical of ratings agencies such as Moody's, given that their upgrades/downgrades seem to follow positive/negative developments, rather than pre-empt them?

gaius c

Dave! wrote: »

It's hard to think of a way for the nay-sayers to put a negative spin on this news.

But I'm confident that they will.

Well for starters, the ratings agencies graded our toxic waste as AAA back in the noughties, so I would be inclined to treat all their pronouncements (positive or negative) with caution.

Scofflaw

gaius c wrote: »

Well for starters, the ratings agencies graded our toxic waste as AAA back in the noughties, so I would be inclined to treat all their pronouncements (positive or negative) with caution.

In the sense that we have paid all our debts in full throughout the crisis without any delay, they were correct to do so. Admittedly, we have been able to do so only because Europe loaned to us, otherwise the market's prophecies of default would have become self-fulfilling.

cordially,
Scofflaw

djpbarry

Scofflaw wrote: »

In the sense that we have paid all our debts in full throughout the crisis without any delay, they were correct to do so. Admittedly, we have been able to do so only because Europe loaned to us, otherwise the market's prophecies of default would have become self-fulfilling.

But nothing ever really changed in that regard, but Ireland's credit rating did?

Scofflaw

djpbarry wrote: »

But nothing ever really changed in that regard, but Ireland's credit rating did?

Well, not sure. Look at the two ratings Baa3 and AA:

Baa3: An obligor has ADEQUATE capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

AA: An obligor has VERY STRONG capacity to meet its financial commitments. It differs from the highest rated obligors only in small degree.

I would say that the latter was true of Ireland in 2006, while the former is true of us now. That our "very strong capacity" to meet financial commitments was, in 2006, extremely fragile on the national level, was compensated for by the European backup that was provided to us - but there was a risk that we could go spiraling off in the direction Greece took.

It's hard to make one designation describe an entire national and international situation.

cordially,
Scofflaw

djpbarry

Scofflaw wrote: »

I would say that the latter was true of Ireland in 2006, while the former is true of us now. That our "very strong capacity" to meet financial commitments was, in 2006, extremely fragile on the national level, was compensated for by the European backup that was provided to us - but there was a risk that we could go spiraling off in the direction Greece took.

Well, if the rating is based solely on Ireland’s capacity to pay existing debts, then the current rating is reasonable, but the AA rating of 2006 doesn’t make sense. However, if the probability of EU/IMF assistance is factored into any risk analysis (which seems reasonable), then the AA rating does makes sense, but the current rating surely does not?

Scofflaw

djpbarry wrote: »

Well, if the rating is based solely on Ireland’s capacity to pay existing debts, then the current rating is reasonable, but the AA rating of 2006 doesn’t make sense. However, if the probability of EU/IMF assistance is factored into any risk analysis (which seems reasonable), then the AA rating does makes sense, but the current rating surely does not?

You can certainly see it that way, I'd say. You could also perhaps say that the AA rating made sense for Ireland considered in isolation, whereas the Baa3 represents Ireland's position considered in light of the global crisis and the European response to it.

That is, had we been the only country affected by, say, an implosion of just our own property bubble, AA would be a reasonable estimation of our likely difficulties - but that wasn't the case, and the Baa3 is based on an appreciation of not just our efforts, but on the likely patience of the other European countries.

cordially,
Scofflaw

Sand

Dave! wrote: »

It's hard to think of a way for the nay-sayers to put a negative spin on this news.

But I'm confident that they will.

Are there any nay-sayers left? I thought Bertie was of the view that people talking down the economy were all going to go off and kill themselves? Didn't that happen?

I struggle to see a reason to get excited about the news, so I dunno how good I'll be at coming up at a reason to be despondent about it. But I like a challenge so...

How about Ireland recovering investment grade status reduces the case for the government's policy aim of a retro-active reduction of Irelands debt related to the bank bailout? Afterall, in a time of limited funds and budget why should the EU take on the debts of a member state that's apparently perfectly well able to pay them off thanks to its tasty investment grade rating?

That work?

However, Ireland is never going to get more than a token deal on the bank debt from the EU, so the while the case is weakened - it doesn't really make that much difference. Gilmore and Kenny's frankly embarrassing whining about getting a retro-active deal on the grounds of fairness ( :pac: ) is about as effective as the Free States policy of travelling the world moaning about partition to anyone who would listen from the 1920s up to the 1960s.

Basically the appropriate response is "Meh". The appropriate way to greet any news is not with optimism or pessimism but with realism.

A Scoundrel

A lot of people simply fail to appreciate what CRAs aim to do.

CRAs are lagging indicators of market activity, they are not leading indicators. That cannot be said enough.

The econometric data for Euroland is mixed, but in Ireland's case, it is proven that rating events follow yield spreads (against Germany).

I think this obsession with CRA events is almost comical. The agencies shroud so much of their methods in secrecy that it is impossible to know how exactly their determinations arise. However, if they're anything like risk management in the banks, people are wayyy overestimating the complexity of the rating decisions.

That's not to say that banks' rating decisions are elementary. The modelling is sophisticated, yet the ratings are highly superficial, and are understood, by banks and savvy investors, to only amount to glimpses of the fleeting present, snapshots in time, using only a small number of variables.

I wouldn't be one bit suprised if CRA decisions weren't based solely on recent yield spreads at least 50% of the time.

Blame the regulators for deifying them.