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Dublin: 6°C Thursday 21 October 2021

Fitch downgrade hits cost of borrowing - yet again

Agency worries about banking costs. Agency downgrades rating. Price of borrowing rises. Repeat ad nauseum.

Image: TheTruthAbout... via Flickr

THE COST OF BORROWING for the government has risen yet again this afternoon as investors react to the downgrade in Ireland’s rating by credit ratings agency Fitch.

Having opened this morning at 6.382% for ten-year bonds, the cost of borrowing for the state had risen to 6.464% by 4pm, a relative increase of 1.293%.

The increased blew the spread between Irish and German ten-year bonds to 424 basis points, a massive jump on the spread from last Thursday after bond markets responded positively when the government announced the final cost of the banking bailout.

Short-term borrowing also got more expensive: two-year bonds went up by 0ver 0.1% to 3.708%; four-year bonds breached 5% for the first time since Thursday, closing at 5.006%.

Six-year bonds also breached a significant barrier, jumping ahead of the 5.5% barrier to close at 5.525% – up by 0.087%, or 1.6% in relative terms – while the price of eight-year bonds closed at just a fraction under 6%.

The Fitch downgrade came as a result of “the exceptional and greater-than-expected fiscal cost associated with the government’s recapitalisation of the Irish banks, especially Anglo Irish Bank.”

Yesterday, another ratings agency – Moody’s – said it was considering downgrading its own rating for the same reasons.

Why you should care about the bond market chaos >

About the author:

Gavan Reilly

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