Ireland's cost of borrowing has begun to climb again. Earlier today the rating agency Moody's put Ireland's debt on review for a possible downgrade.
It said it took the step due to the cost of fixing the country's banks, the outlook for domestic demand and recent rise in borrowing costs.
The development comes after three days of improving sentiment towards the country following the Government's publication of its €35 billion bail-out plan for Anglo Irish Bank and Irish Nationwide and the virtual nationalisation of AIB.
This evening, the cost of borrowing money for 10 years for Ireland reached 6.52%, up from 6.3% when the market opened. While the level of interest is high, it is lower than its zenith of 6.9% which it reached recently ahead of Minister for Finance Brian Lenihan's bank announcement.
Moody's said that if it decided to downgrade Ireland's Aa2 rating it would likely most likely be by one notch. The agency's last one-notch cut was on July 19 although it also slashed its ratings on the lower-grade debt of Anglo Irish Bank last month. Its evaluation of Ireland is still one step higher than those of the other main agencies - Fitch and Standard & Poor's.
Despite Moody's step, the rating agency's analyst Dietmar Hornung said Ireland was better placed to deal with is budgetary crisis than many other euro zone countries. He told the Reuters news agency that the Government had to come up with a 'credible plan' to bring the deficit below 3% by 2014.
A separate report from the International Monetary Fund said Ireland's large financial system and the large scale of concentrated exposures to the commercial property sector had a greater impact on its cost of borrowing than other peripheral euro zone states.
It said actions on Anglo Irish 'coupled with other actions to stabilise the Irish banking system and the fiscal balance sheet are expected to limit the contingent liabilities faced by the Government'.
Fitch lowers rating on Anglo covered bonds
Credit rating agency Fitch has downgraded two bonds issued by Anglo Irish Bank which are linked to mortgages on commercial property.
The bonds were issued under the bank's UK covered bond programme and Anglo Irish Mortgage Bank's Irish asset securities covered programme. They have been downgraded from A to AA+.
Both sets of bonds are backed partly by mortgages on commercial property, and Fitch believes there is a 'low likelihood' of selling these mortgages when the bonds are due to be repaid. The agency expects that there will be 'no appetite' for such loans in what it calls a 'stressed environment' for commercial property.
The bonds covered amount to £3.8 billion for the UK programme and €3.3 billion for the Irish programme.
