* Moody's remains only agency to rate Ireland as junk
* Landmark bond sale raised hopes of upgrade
* Moody's says euro zone, bank assets weigh on rating
By Conor Humphries
DUBLIN, March 28 Credit agency Moody's dashed
Irish hopes of an investment grade rating in the wake of its
landmark 10-year bond issue, saying Cyprus' "unprecedented"
bailout increased the risks associated with holding Irish debt.
Moody's, the only agency that ranks Ireland's debt as
'junk', said on Thursday that, despite the country's steady
progress in regaining market access, it was maintaining its Ba1
rating with a negative outlook.
"Ireland's vulnerability to wider euro-area stresses has
been reaffirmed by euro area policymakers' handling of the
Cyprus crisis," Moody's said in a statement.
The crisis showed policymakers' "increased risk tolerance"
and "a more uncompromising and less predictable approach to
crisis management", it added.
Irish officials had hoped Moody's would at least lift its
negative outlook after taking its biggest step yet this month
towards exiting an EU/IMF bailout this year, selling 5 billion
euros ($6.4 billion) of new 10-year bonds.
The head of Ireland's debt agency John Corrigan said at the
time that the success of the auction indicated "either the
market is wrong or Moody's is wrong."
Moody's Ireland analyst Kristin Lindow said there was no
contradiction as market pricing was about "a lot more than just
She said she could not say whether or not there would be an
upgrade in the current year, in part because it was unclear how
the broader euro zone crisis would develop.
"If there were mistakes made that lead to turbulence in the
markets, Ireland specific events might not be able to counter
that," Lindow told Reuters in a telephone interview.
Bond dealers said the rating affirmation was a big
disappointment as many investors had priced in an upgrade but
market reaction was relatively muted with the yield on Ireland's
benchmark 2023 bond widening by 2 basis points to
4.28 percent at 1224 GMT.
Weakness in euro zone economies could impact Ireland's
economic growth, the "fundamental issue" that will determine
future ratings, Lindow said.
While resilient exports have seen Ireland's economy grow for
the last two years and data last week showed consumer spending
had risen in the last two quarters of 2012, figures on Thursday
painted a picture of a domestic economy remaining sluggish.
On the domestic front, Moody's said the biggest risk was the
continued poor asset quality of Irish banks, and their likely
reluctance to provide new credit when loan demand revives,
indicated that the country did not deserve investment grade.
On the other hand, a precautionary credit line from the
International Monetary Fund and European Union would be "viewed
positively" as it would qualify Ireland for its new bond buying
programme, the Outright Monetary Transactions scheme.
Analysts said Moody's decision not to change its outlook
could dampen enthusiasm about Ireland after 18 months in which
bond yields have fallen from around 15 percent ago to just over
"Following the almost uninterrupted run of more favourable
news flow on the Irish economy and sovereign over recent months,
Moody's provides what might be described as a reality check this
morning," said Dermot O'Leary, chief economist at Goodbody
"Ultimately, the decision is a reminder that the job is not
done." ($1 = 0.7824 euros)