Bonds boosted in wake of Moody’s debt outlook move

Ireland’s government bonds fell yesterday, outperforming all their eurozone counterparts after Moody’s Investors Service raised the outlook on the nation’s debt, citing stability in its access to financial markets.

The extra yield that investors demand for holding Irish 10-year securities instead of German bunds dropped to the least since May 2010. Germany’s government bonds fell as Angela Merkel searched for a third-term coalition partner after winning Sunday’s elections.

“The Moody’s change is only a change in outlook, they still have Ireland at sub-investment grade, but it is a positive development,” said Owen Callan, an analyst at Danske Bank in Dublin.

“It reflects the adjustment that the nation has made and that’s why we’re seeing a bit of a better performance in Irish bonds.”

Ireland’s 10-year bond yield decreased three basis points, or 0.03 percentage point, to 3.86%.

Ireland’s Ba1 grade at Moody’s, one step below investment grade, compares with BBB+ rankings by Standard & Poor’s and Fitch Ratings, according to data compiled by Bloomberg. The country’s government debt will likely “level off relative to gross domestic product,” Moody’s said last week.

The yield spread between Irish 10-year bonds and similar- maturity bunds narrowed four basis points to 191 basis points, after reaching 187, the least since May 2010.

Merkel’s Christian Democratic bloc took 41.5% of the vote in Sunday’s election versus 25.7% for the Social Democrats of Peer Steinbrueck. That leaves Merkel needing a coalition partner.

The region’s economic recovery is gathering pace after it emerged from its longest recession since the euro’s 1999 debut, supported by record-low interest rates from the ECB.