As if the PIIGS needed any more bad news, Moody’s has just downgraded Ireland yet again.  Like you wouldn’t have known about this.  This pertains to its foreign and local-currency government bond ratings.  The cut is only one notch, but this moves it into official junk at Ba1 from a prior Baa3.  And as you might guess, the Moody’s outlook remains negative.  Another cut was delivered in the form of a short-term issuer rating to non-Prime.

While Moody’s did note that concerted efforts have been made, the overall path here is a red one.  The key driver is that Ireland is likely to need further rounds of official financing after the end of the E.U. and I.M.F. support packages end in 2013.  There is also the note that the private sector creditor participation in debt relief, i.e. haircuts.

Moody’s has said that the prospect of any private sector participation in debt relief is negative for holders of distressed sovereign debt.  In short, any help o relief is possibly a de facto credit event.

Also noted as risks are implementation to deficit reduction plans and a shift in tone of European Union governments toward how and under what conditions such aid may come. Here is how the three credit-sensitive Irish trades for U.S. investors are shaping up so far in funds and/or ADRs:

The New Ireland Fund, Inc. (NYSE: IRL) is down 0.5% at $8.06 and the 52-week range is $5.55 to $8.77.

Allied Irish Banks plc (NYSE: AIB) is down 1.7% at $1.72 and the 52-week range is $1.61 to $13.65.

Bank of Ireland (NYSE: IRE) is down 3.8% at $1.01 and the 52-week range is $1.00 to $4.86.  That new low was hit today.

Do not expect this to be last of the credit rating downgrades in Europe and particularly in the lands of the PIIGS.

JON C. OGG

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