Rating upgrade brings Irish bond yields below 2%

Monday 18 August 2014 18.29
Fitch upgrades Ireland's ratings to A- from BBB+
Fitch upgrades Ireland's ratings to A- from BBB+

Irish 10-year bond yields fell to a record low of 1.96% earlier today, before climbing back to 2.02%, after Fitch on Friday became the second of the three main credit agencies to give the country an A rating for the first time since before its international bailout.

Ireland's upgrade took its ratings to A- from BBB+, with the agency citing a continued improvement in the country's finances over the last year. 

The move follows a similar rating action by Standard & Poor's in June. 

The move does not trigger forced buying from investors tracking ratings-based bond indices. But it reinforces the improved sentiment towards the country since it successfully ended its three-year EU/IMF bailout programme last year. 

Ten-year Irish yields fell to a record low of 1.96% earlier this morning before climbing back up to 2.01% with traders citing profit-taking by hedge funds in low volumes. 

The spread between Irish yields and the European benchmark was the lowest since 2008 at 95 basis points, having peaked at about 1,240 basis points in 2011 when Ireland had no market access and some investors worried it might default. 

For the broader euro zone market, the conflict in Ukraine remained a major driver. Bund yields rose two basis points to 0.995%, having hit a record low of 0.952% on Friday. 

Russia's comments that "a certain progress" has been achieved during talks at the weekend paused the flows into assets perceived as safe havens, although investors remained wary. 

Russia and the West have imposed tit-for-tat economic sanctions which have tarnished the outlook for the euro zone, whose economy stagnated in the second quarter. 

The poor economic data and the weaker prospects for a speedy recovery have increased expectations that the European Central Bank may eventually start printing money by buying government bonds.