UPDATE 2-Moody’s slashes Ireland to Baa1, warns on future debt

* Moody’s cuts rating by five notches from Aa2

* Says may cut more unless Ireland stabilises debt situation

* Irish bond yields rise, pressure on euro renewed

By Padraic Halpin

DUBLIN, Dec 17 (BestGrowthStock) – Moody’s Investors Service slashed
Ireland’s credit rating by five notches to Baa1 with a negative
outlook from Aa2 on Friday and warned further downgrades could
follow if Ireland was unable to stabilise its debt situation.

Ireland’s debt levels have quadrupled since late 2007 on the
back of a banking sector meltdown, and it needs solid economic
growth to ensure it can meet repayments and fiscal targets set
down in the 85 billion euros EU/IMF bailout agreed last month.

Moody’s downgrade followed Fitch’s move last week to become
the first ratings agency to strip Ireland of its ‘A’ credit
status, cutting it by three notches to BBB+ following the
debt-stricken government’s request for an EU/IMF bailout.
[ID:nLDE6B81AH]

S&P is the only ratings agency that still has Ireland in the
top band but that may not last long as it has its A rating on
review for a possible downgrade.

“While a downgrade had been anticipated, the severity of the
downgrade is surprising,” Dublin-based Glas Securities said in a
note.

The move pushed Irish 10-year government bond yields
(IE10YT=TWEB: ) 7.5 basis points higher to 8.522 percent, and the
yield spread over German Bunds rose about 10 bps wider on the
day to 551 bps.

The Portuguese/German spread also widened about nine basis
points to 364 bps while the Swiss franc climbed to an all-time
high against the euro after the downgrade renewed pressure on
the single currency. [ID:nLDE6BG0BR] [ID:nLDE6BF1VT]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro zone credit ratings graphic http://r.reuters.com/get52k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

While a pre-Christmas market lull may have led to a
temporary truce in the onslaught against peripheral euro zone
debt, ratings agencies have been busy flagging up the fact that
risks are undiminished.

Just prior to its downgrade of Ireland, Moody’s said late on
Thursday that it had put Greece’s Ba1 rating on review for a
possible downgrade, citing uncertainty over the country’s
ability to cut debt to sustainable levels. [ID:nN16276701]

Moody’s put Spain’s debt on review for a possible downgrade
on Wednesday, highlighting concerns over a funding crunch next
year, although it said it did not expect Madrid to have to
resort to a bailout as Greece and Ireland have. [ID:nL3E6NF0D8]

And Standard & Poor’s said this week it may cut Belgium’s
debt rating if the country’s inability to form a government
threatened deficit- and debt-reduction goals. [ID:nnLDE6BD17S]

Moody’s said the crystallization of bank related contingent
liabilities, increased uncertainty regarding the country’s
economic outlook and decline in the government’s financial
strength were the key drivers of the action.

While Ireland avoided slipping back into recession in the
third quarter — posting gross domestic product growth of 0.5
percent — the modest upturn underlined the huge challenge ahead
in tackling its financial crisis. [ID:nLDE6BF196]

Moody’s said Ireland’s uncertain economic prospects were
amplified by its required four-year, 15 billion euro
budget-cutting plan, which it said is likely to weigh on
domestic demand and further drag on the country’s recovery
prospects.

“Should Ireland’s adjustment capacity prove to be
insufficient to stabilize debt metrics in the foreseeable
future, a further rating downgrade would follow,” Moody’ said.
(Editing by Hugh Lawson)

UPDATE 2-Moody’s slashes Ireland to Baa1, warns on future debt