The cost of insuring against the possibility of the Irish government defaulting on its debt rose sharply on Monday morning, following news that Standard & Poor’s had lowered the country’s credit rating for the second time in less than three months.
The rating agency, which in March stripped Ireland of its triple-A status, explained the cut to AA from AA+ as being based on concerns over the long-term fiscal stability of the euro zone nation:
“We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009,” S&P said in a statement.
The cut pushed the cost of insuring the country’s sovereign debt over five years 11 basis points wider early on Monday, trading at 225bps up from Friday’s close.
The appetite for risk dwindled on the broader scene in Europe, ending a positive run last week, as equities fell and investors lost some of their positive sentiment over the prospects of economic recovery.
The iTraxx Crossover index, which tracks the 45-most traded names in the high yield class, widened by almost 20bps on Monday morning, to trade at 681bps.
Similarly, the flagship iTraxx Europe index, which tracks the 125 most liquid investment grade corporates, and which last week hovered just above the psychologically important 100bps floor, widened by 5bps from Friday’s close to trade at 107bps.