* Irish five-year yields dip below U.S. equivalents
* Moody's upgrade of Irish ratings follows bailout exit
* Irish yields seen closing in on those of France, Belgium
* Moody's to release review of France on Friday
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, Jan 20 Ireland's five-year borrowing
costs fell to their lowest in the 92-year history of the state
on Monday as investors snapped up its bonds after Moody's
restored the country's credit rating to investment grade.
Yields on five-year Irish bonds fell marginally below
equivalent U.S. Treasuries, the global benchmark,
with investors anticipating further ratings upgrades in coming
months supported by an improving economy.
Moody's, which was the only rating agency to class Irish
government debt as "junk", raised it to Baa3 from Ba1 with a
positive outlook after the market closed on Friday, citing the
economy's growth potential and regained market access as the
Ireland exited an 85-billion-euro international bailout
programme in December.
The ratings upgrade means investors prohibited from buying
junk-rated debt will be able to buy Irish bonds and that the
paper may be eligible for a return to the widely-tracked
JPMorgan EMU Government Bond Investment Grade Index.
Irish five-year yields dropped 17 basis points to
a low of 1.625 percent, just below the 1.6254 percent equivalent
U.S. yields touched at Friday's close, according to Reuters
data. The U.S. market was closed on Monday.
Five-year Irish yields topped 18 percent in mid-2011 at the
height of the euro zone debt crisis.
Ten-year yields also fell 17 bps on Monday,
to 3.275 percent, near the eight-year lows plumbed on Jan. 8 and
further below Italian and Spanish equivalents.
"Ratings agencies are catching up with reality," said Chris
Scicluna, head of economic research at Daiwa Capital Markets.
"Yields are still closer to the periphery (than top-rated
states) so you can't argue the rally is excessive."
Ireland's NTMA debt agency head, John Corrigan, told state
broadcaster RTE Moody's may upgrade again within 12-15 months if
Ireland sticks to its fiscal targets.
Standards and Poor's and Fitch rate Irish debt three notches
above junk at BBB+. S&P lifted its outlook to positive last year
while Fitch, scheduled to give an update in a month's time, has
a stable outlook.
CLOSING IN ON FRANCE
The cost of insuring against an Irish default fell.
Five-year credit default swaps broke below 100 bps for the first
time since 2008, to 93 bps, according to Markit.
Ireland's yield premium over Germany shrank to 152 bps, near
its narrowest level since early 2010 before Dublin followed
Greece in seeking an international bailout.
Some in the market doubt yields can fall much further.
"To speak about Europe as a whole, rather than just Portugal
and Ireland ... it's difficult for us to see much value now,
because a lot of the positive benefits have now been priced in,"
said Roger Webb, an investment director at Scottish Widows
Other market participants see Irish yields closing in on
those of higher-rated French and Belgian debt.
France is considered vulnerable to a downgrade as Moody's
has had a negative outlook on the euro zone's second largest
economy since February 2012. Moody's is scheduled to release its
review of France and Slovenia on Friday.
"With France struggling on the structural reforms and budget
deficit reduction fronts, our base case is for a one-notch
downgrade with stable outlook," Commerzbank strategists said in
Yields on Portuguese 10-year bonds fell below
5 percent for the first time since mid-2010. S&P removed
Portugal from credit watch negative on Friday but kept a
negative outlook on its sub-investment grade rating. The fall in
yields suggested investors were more optimistic than the agency
that Lisbon can exit its bailout programme this year.