Portugal boosts Irish bonds
The yield on benchmark 10-year notes slid to a 20-month low after S&P revised the sovereign rating to BBB- from BB+ with a stable outlook. Bonds in Ireland were bid after Moody’s lifted the sovereign rating to A2 from A3, citing a faster-than-expected pace of economic growth here.
The risk premium on Portuguese debt declined as finance minister Mario Centeno said he expects greater demand for his nation’s debt from a broader array of investors to spur lower borrowing costs both for the government and corporations.
The Bank of Portugal forecasts economic growth in the country, which exited a three-year international aid programme in 2014, will accelerate to 2.5% this year from 1.4% last year. DBRS already has an investment-grade rating on Portugal.
“The big implication is that we now have two ratings in the investment grade territory and one from the big one, S&P, so everybody is looking for others to follow which means your investment base broadens significantly,” said Jens Peter Sorensen, chief analyst at Danske Bank in Copenhagen.
“I would suspect that there will be some hot money trying to be ahead of the curve here and buying Portugal because you still get a significant yield pick up.”
The yield on 10-year bonds in Portugal fell 27 basis points to 2.53%, having earlier touched 2.50%, the lowest since January 2016.
This took the spread over comparable benchmark German bunds to 209 basis points from 237 basis points last week. The yield on 10-year Irish debt fell 1 basis point to 0.72%.
In its statement on Ireland, Moody’s said flexibility of the economy provided it with a degree of resilience to Brexit. The outlook on the rating is now stable, “supported by continued robust economic growth and a prudent policy framework that will yield further reduction in public debt,” read the statement.
Analysts at Rabobank International, headed by Richard McGuire, do not expect the upgrade for Portugal to have an immediate impact on its potential inclusion in investment-grade benchmark indexes as eligibility for these are usually based on the “average rating of the big three or the middle rating”.
