The rationale was based on the assessment that there was a "growing possibility" that Ireland would require a second bail-out when the current programme ends in 2013.
Ireland joins Greece and Portugal as the third eurozone economy with a credit rating below investment grade, marking continued debt problems across peripheral Europe. In contrast to Greece and Portugal, inspectors from the European Union, European Central Bank and International Monetary Fund praised the progress made by the Irish authorities in acting to close the budget deficit and bolster the banking system. However, Moody's evidently took a more cautious approach in the current uncertain environment.
We remain very cautious, not just on the fixed income market in Portugal but across most of the countries on the southern periphery of Europe, with no exposure to Portugal, Greece or Ireland in our international, global or global aggregate bond strategies.
Our view has not been changed by the release of the results of the latest "stress tests" of European banks by the European Banking Authority at close of business on Friday. Although only eight banks out of ninety participating failed the tests, the tests did not include an assessment of the impact of sovereign defaults - now widely expected in the case of Greece. In the absence of this, we do not believe the tests are credible and, as such, are unlikely to improve market confidence in the region's financial system.
Harjeet Heer
Head of Global Aggregate
Baring Asset Management, London
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