Terence Flanagan
Question:80. Deputy Terence Flanagan asked the Minister for Finance his views on Ireland's current credit rating and recent bond auctions; and if he will make a statement on the matter. [10276/14]
View answerThursday, 27 February 2014
Questions (80)
Written answers
Ireland's current rating by the Rating Agencies is summarised in the table.
|
Credit Rating Agency |
Long-Term rating, Outlook |
Grade |
Last action and date |
|
Moody's |
Baa3, Positive |
Investment |
One notch upgrade into investment grade and positive outlook 17 Jan 2014 |
|
Standard and Poor's |
BBB+, Positive |
Investment |
Positive Outlook 12 July 2013 |
|
Fitch Ratings |
BBB+, Stable |
Investment |
Re-affirmed 21 Feb 2014 |
|
DBRS |
A(low), Negative |
Investment |
Re-affirmed 22 Nov 2013 |
|
R&I |
BBB+, Stable |
Investment |
Re-affirmed 20 Jan 2014 |
The most recent change in Ireland's credit rating was by Moody's which upgraded Ireland by one notch to investment grade on 17 January 2014. It was the first rating change by Moody's since it cut Ireland's rating to sub-investment grade in July 2011. Moody's cited two reasons for the upgrade:
1. the growth potential of the Irish economy, which together with ongoing fiscal consolidation is expected to bring government debt ratios down; and
2. the Irish Government's exit from its EU/IMF supported programme on schedule, with improved solvency and restored market access.
Ireland is now at investment grade with all five credit rating agencies and this will attract investors which had hitherto been unable to buy Irish government debt due to their mandates. As a result of the recent upgrade by Moody's, some Asian and Middle-Eastern investors, along with others in Europe including insurance companies, are likely to be in a position to consider investing in Irish Government debt in future. Market reaction to the Moody's announcement has been positive.
The announcement by Fitch Ratings on 21 February 2014 affirming its rating has had no impact on Ireland's government bond yields and, in fact, there has been a modest rally since then. It is clear that Ireland has rebounded from the bottom of the 'ratings cycle'. There is a view that the credit rating agencies are catching up on the market in terms of their increasingly positive view of Ireland.
On 7 January 2014 the National Treasury Management Agency issued a new 10-year bond by syndication. The new €3.75 billion benchmark bond was priced at a spread of 166 basis points over the 10-year German bund at a yield of 3.543%.
Although the order book amounted to €14 billion, the NTMA decided to limit the size of the new bond to €3.75 billion in order to leave capacity for bond auctions in its funding programme for 2014. Some 400 investors participated in the transaction with the largest share of demand coming from abroad, particularly pan-European and US real money accounts. There was notable demand from the UK (26%) and Nordic regions (15%) as well as the US (14%), with strong support from the domestic investor base (17%). 49% of the take-up was from fund managers with banks comprising 27% and pension funds 10%.
This transaction is part of the process of normalising Ireland's market access it was necessary to demonstrate that Ireland had full market access having exited the EU/IMF programme. The intensive investor relations programme made it possible to bring the new 10-year bond to the market at very short notice it had been made clear to investors that the NTMA intended issuing early in 2014.
The successful execution of a scheduled series of bond auctions would complete the process of market normalisation. The NTMA's working plan for 2014 is to raise a total of around €8 billion, as prefunding for 2015, the remainder of which it is intended to be raised by way of a series of auctions, commencing on 13 March, involving the NTMA's network of Primary Dealers.
In 2013, the NTMA issued €2.5 billion of the existing 5-year benchmark bond by syndication at a yield of 3.32% in January and then in March sold €5 billion of a new 10-year benchmark bond by syndication at a yield of 4.15%. This was the first new 10-year benchmark issuance since January 2010, prior to Ireland's entry into the EU/IMF programme.
Regular auctions of short-term Treasury Bills, which resumed in July 2012, continued throughout 2013 with eight auctions during the year. Each auction raised €500 million of 3-month money at an average annualised yield of 0.2%. The next Treasury Bill auction is scheduled to take place on 20 March 2014.
Question No. 81 answered with Question No. 58.