“Fitch Ratings has today placed the Republic of Ireland’s ‘AAA’ Long-term foreign currency Issuer Default Rating (IDR) on Rating Watch Negative.
The rating action reflects recent disappointing news on government revenue performance which points to very sharp declines in tax receipts across the board in January and February. This will intensify the policy challenges facing the government as it seeks to tighten fiscal policy further than anticipated in the midst of a steep recession and raises the risk of fiscal slippage.
In the first two months of this year revenues were again below the already low expectations built into the government’s January forecasts. In response to these forecasts Government took action designed to produce savings this year of EUR2bn and thereby reduce the government’s deficit to 9.5% of GDP. The latest information suggests, in the absence of any further Government action, the 2009 deficit could be increased by another EUR4bn, equivalent to over 2% of GDP, implying a revised deficit of 11.5% – 12%. The Prime Minister has said that new tougher measures on both taxation and public expenditure to rectify the further slippage in the fiscal position will be announced and a supplementary Budget is scheduled for the first week of April.
Fitch will re-assess the medium term prospects for Ireland’s public finances in light of the deterioration in revenue prospects, forthcoming policy announcements and worsening economic conditions, which could raise the potential call on government funds to support the Irish banks. A Rating Watch Negative is typically resolved within three to six months.”
As a reminder, there are 2 stages in the process of changing ratings with S&P and Fitch (Moody’s is a bit different).
“Rating Watch Negative”
This means action imminent in days (max 4 weeks), and is typically almost certain.
This means action possible within months (sometime years for sovereigns).
(Ireland is still AAA/Aaa neg outlook with S&P, Moody’s)
The worst damage to spreads is done with the Outlooks… but if the day wants it, any statement is as good an excuse as any to sell risk…
Irish – Bund 2013 and 2018 back to near their highs in terms of yield spread, at 262bp and 284bp respectively.