Irish yields hit record low on ratings lift, ECB stimulus

LONDON: Irish bond yields dipped to a record low on Monday after Standard & Poor's upgraded the country's credit ratings, adding to the buoyant mood in peripheral euro zone debt triggered by fresh European Central Bank stimulus.

Other peripheral euro zone bond yields also hit the latest in a series of historic lows, with Spanish 10-year yields falling below those of US Treasuries for the first time since April 2010.

S&P raised Ireland's credit standing to "A-" from "BBB+" late on Friday and said it could upgrade it further if additional data confirmed the recovery of the country's economy and that fiscal deficits have fallen below 3 percent of gross domestic product.

It affirmed Italy's rating at "BBB/A-2" with a negative outlook. Moody's is scheduled to review Italy's ratings on Friday.

Irish 10-year yields fell 5 basis points to 2.40 percent with Spanish yields down by a similar amount at 2.60 percent. Italian equivalents were 4 bps lower at 2.71 percent.

"Clearly Ireland's ratings upgrade adds to the increasingly better news for the peripheral in general but ratings agencies tend to lag what the market is doing," said Orlando Green, a strategist at Credit Agricole. "But broadly this is certainly about the market looking at the ECB and what they have done and what they will do in the future so investors are grabbing yields while they can."

Last week's easing measures by the ECB has given fresh impetus to a two-year euro zone debt rally that has driven borrowing costs in countries that were at the forefront of the sovereign debt crisis to record lows.

The ECB cut all its main rates to record lows, and ECB President Mario Draghi also outlined a new long-term loan programme (TLTRO) for banks to promote lending to small and mid-sized businesses.

Some analysts said banks were likely to use the four-year loans to buy shorter-dated peripheral euro zone bonds and repay the money two years later, as there was nothing yet in the conditions to dissuade them from such trades. "As the dust settles and market players get a handle on the generous terms and conditions of the new facility, a re-run of the LTRO carry trade emerges as the most plausible scenario.

The flamboyant 'liquidity-on' sentiment should extend this week," Commerzbank strategists said in a note.