LONDON: Ireland's long-term government borrowing costs fell below 0.80 percent for the first time in nearly five weeks on Monday after Moody's upgraded the country's credit rating.
The lift by one notch to A3 from Baa1 means Ireland has won back an A category rating from all the major agencies, a move that some analysts said could broaden the international buyer base for Dublin's debt.
Ireland's 10-year bond yield, having shed 8 basis points on Friday in expectation of the upgrade, fell another 4 basis points on Monday to 0.78 percent, the lowest since April 11. By the close, it had edged back up to 0.81 percent but was still 1.2 bps lower on the day.
Irish bonds were the top performers, with yields on most other euro zone debt flat to slightly higher on the day. "The upgrade by Moody's expands the range of potential buyers of Irish bonds.
Some investors, particularly in Asia, require a minimum A grade from all of the three big agencies," Cantor Fitzgerald strategist Ryan McGrath said. Moody's was the only agency to cut Irish debt to junk in 2011, months after Dublin entered a three-year international bailout.
The agency, which kept a positive outlook on its new rating on Saturday, said in a statement that growth in the country has been better than expected in recent months.
Ireland's economy grew almost 8 percent last year, and is forecast to expand by close to 5 percent this year to remain the best performing economy in the European Union for a third successive year.
"ENORMOUS CHANGE"
That growth should cut Ireland's gross debt below 90 percent of gross domestic product by the end of the year, the country's Finance Ministry has predicted. Ratings agencies have been impressed by that sharp reversal from a peak of 125 percent during 2013.
"We think the debt-to-GDP ratio will be below 90 percent by the end of the year, which is an enormous change from where we were," said Conall Mac Coille, chief economist at Davy Research. He said the conditions for a further upgrade from Moody's remained in place.
The lift also came a week after Enda Kenny was re-elected prime minister, ending 10 weeks of political deadlock, as head of a minority government that many analysts believe will be short-lived amid Ireland's newly fractured parliament.
Next month's vote on EU membership in Britain, one of Ireland's largest trading partners, also poses a significant risk.
In its statement, Moody's said a UK exit from the European Union would have a negative impact on Ireland due to its close economic ties with Britain.
"There may be some caution ahead given Ireland remains especially vulnerable to a Brexit vote," Societe Generale strategist Ciaran O'Hagan said.
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