Ready for another bailout of Ireland? Moody's is.
The rating agency slashed Ireland's ratings to junk Tuesday, just three months after its last downgrade of the debt-soaked former Celtic Tiger. Moody's warned that Ireland isn't likely to be able to raise funds in the bond market after its current bailout loan expires at the end of 2013.
Ireland, laid low by its decision to bail out its reckless, feckless banks, took 85 billion euros ($122 billion) in aid last fall from the European Union and International Monetary Fund, promising to whip its flagging economy back into shape.
But digging yourself out of a giant hole isn't easy. With 10-year Irish government bonds yielding the low, low rate of 14% in recent trading, Ireland "is likely to need further rounds of official financing before it can return to the private market," Moody's said.
The downgrade comes after a wild two weeks in which Europe's debt crisis, long centered in weaker economies such as Ireland, Portugal and Greece, has moved into the supposedly more robust states of Spain andItaly. The sovereign debt selloff comes as European leaders tiptoe toward a plan to allow Greece to default on some of its bonds in a bid to reduce its debt load and stay out of the abyss.
Moody's said it is becoming clear that such creditor haircuts are going to be part of any future aid package – which isn't going to make it any easier for the weaker countries to raise money from investors in the foreseeable future.
Moody's assumption surrounding increased private sector creditor participation is driven by EU policymakers' increasingly clear preference -- as expressed during the negotiations over the refinancing of Greek debt -- for requiring some level of private sector participation given that private investors continue to hold the majority of outstanding debt. A call for private sector participation in the current round of financing for Greece signals that such pressure is likely to be felt during all future rounds of official financing for other distressed sovereigns, including Ba2-rated Portugal (as Moody's recently stated) as well as Ireland.
The good news, such as it is, is that Ireland is still in much better shape than Greece. That's not saying much, because at last look the credit markets were saying a Greek default has an 8 in 9 chance of happening within five years.
And if Greece does run off the rails in spite of official efforts to prop it up, Ireland could find itself in deeper trouble as well.
Although Ireland's Ba1 rating indicates a much lower risk of restructuring than Greece's Caa1 rating, the increased possibility of private sector participation has the effect of further discouraging future private sector lending and increases the likelihood that Ireland will be unable to regain market access on sustainable terms in the near future. This in turn implies that some Irish government bond investors would need to absorb losses. The increased risk of a disorderly and outright payment default or of a disorderly debt restructuring by Greece also increases the risk that Ireland will be unable to regain access to private sector credit.
Moody's kept its outlook on Ireland negative, meaning it could downgrade again if the government misses its cost-cutting targets or if the market gets even more unruly. At the current rate, that could be next week.
Europe's bailout trap ensnared Portugal Tuesday, as S&P downgraded its debt.
The rating agency cut its rating on Portugal to triple-B-minus from triple-B, citing last week's decision by European ministers to impose strict terms on nations that tap a new bailout fund taking effect in 2013.
The downgrade wasn't unexpected, S&P having recently warned it was headed in this direction. S&P also downgraded Greece to double-B-minus from double-B-plus, citing the same bailout rules.
But MOREColin Barr - Mar 29, 2011 11:20 AM ET
Moody's warned Thursday that the tax cuts enacted last month could push up U.S. borrowing costs and erode some of the dollar's global appeal.
The rating agency said the United States' embrace of fiscal stimulus rather than debt reduction creates "a small but increasing likelihood that markets will demand a higher risk premium on government debt, in sharp contrast to the safe-haven status that the U.S. Treasury bond has long enjoyed."
Moody's noted MOREColin Barr - Jan 13, 2011 10:02 AM ET
Contrary to what you might have thought over the past week or two, every country in Europe isn't in danger of an imminent downgrade.
So says Standard & Poor's, which affirmed France's triple-A rating Thursday. The rating agency cited French belt-tightening progress and a political environment that it says is "stable and oriented toward prudent economic policies."
The rating agency said it expects the economy to grow slowly but surely in 2010 MOREColin Barr - Dec 23, 2010 2:47 PM ET
A publicity-minded Chinese rating agency has added its two renminbi to the cacophonous debate over the Fed's latest tilt at money-printing.
The state-backed Dagong Global Credit Rating Co. on Tuesday downgraded its rating on the United States to A-plus from double-A, maintaining its negative outlook.
It warned that the Federal Reserve's plan to buy $600 billion of Treasury securities over eight months in its second go at so-called quantitative easing could trigger a MOREColin Barr - Nov 9, 2010 2:42 PM ET
I appeared this weekend on China Network Television to discuss the efforts of Chinese rating agency Dagong to crack the market currently dominated by Moody's (MCO), Standard & Poor's and Fitch. As badly as the U.S.-based agencies have botched things, it is going to take a while for anyone to break their grip on the market, as I discuss with two other hard-hitters. You give us 22 minutes, we give you the world, MOREColin Barr - Jul 19, 2010 4:02 PM ET
Shareholders liked BP's decisions Wednesday. But a bigger question is how the rating agencies will take the news.
Mollifying President Obama and restive shareholders isn't the only task for the oil giant's chairman, Carl-Henric Svanberg (right, with Obama).
Now he and his minions must court the rating agencies. Both Moody's and Standard & Poor's downgraded BP (BP) earlier this month, saying massive legal and cleanup costs from April's gulf coast oil spill would weigh MOREColin Barr - Jun 16, 2010 4:21 PM ET
Why fix a problem when you can study it instead?
That's what members of Congress seem to be asking when it comes to financial regulation.
Two years after the financial sector imploded and policymakers poured trillions of dollars into the financial system, reformers are pushing for sweeping new rules, saying a financial industry overhaul is long overdue. Wall Street is fighting to beat the new guidelines back, warning of higher costs and MOREColin Barr - Jun 15, 2010 3:12 PM ET
Berkshire Hathaway cut its stake in rating agency Moody's for the third straight quarter, according to a regulatory filing.
But other big investors have been buying the beleaguered rating agency, whose shares have fallen 19% this year.
Berkshire (BRKA), run by billionaire investor Warren Buffett, sold a million shares of the New York-based company in the first quarter ended March 31. Berkshire remains Moody's (MCO) biggest single investor with a 31 MOREColin Barr - May 18, 2010 10:27 AM ET
Al Franken doesn't scare the rating agencies.
Or at least, investors are skeptical that Sen. Franken's attempt to rein in the conflicts of interest that riddled the likes of Moody's (MCO) and the S&P unit of McGraw-Hill (MHP) during the recent housing boom will do any more financial damage to the companies.
Late Thursday, the Senate passed an amendment proposed by Franken (D-Minn.) that would create a board to divvy up the work of rating MOREColin Barr - May 14, 2010 11:11 AM ET
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