Wednesday 16 September 2009

Creditworthiness: Ireland v Peru

Brian Lucey is quoted in the Irish Times as saying “Right now we’re seen as being less creditworthy than Peru.”
“Peru, of course, has natural gas, oil and literally mountains of gold. But they can give it to Peru or they can give it to Ireland.”
This is not correct.

The Financial Times (15/9/09) quotes the yield on Irish Government debt at 3.35% for bonds redeemed in January 2014 and quotes the yield on Peruvian Government debt for bonds redeemed one year later (February 2015) as 4.40%. Yields rise as the maturity of the bond extends, hence an equivalent maturity bond from Peru will yield slightly less than 4.4%. but more than on Irish Government debt.

Earlier this year Moody’s reduced Irelands credit rating to AA1 and Standard and Poors reduced Irelands credit rating from AAA to AA+. The Peruvian bond quoted in the above example is assigned a rating by Moody’s of Ba1 and by Standard and Poors BBB-

On these two standard measures of creditworthiness (yield on government bonds and credit rating) Peru is less creditworthy than Ireland.

4 comments:

Anonymous said...

Thanks for setting the record straight on our creditworthiness relative to that of Peru.

In yesterday’s Irish Times, Kathy Holmquist in an excellent article wrote about the oppressive orgy of self-flagellation that has beset the country.

Incorrect assertions such as this one highlighted by you are an inherent element of this oppressive orgy of self-flagellation. Whatever the perverse pleasures derived by those fuelling this oppressive orgy of self-flagellation, their irresponsibility in doing do is callous in the extreme.

Anonymous said...

Oh please! You cannot honestly cite what Moody's thinks as support for your argument. I mean Moody's had most of sub-prime classed as AAA until mid 2008. Ireland may well be a better credit risk than Moody's but citing something like sovereign CDS rates will be a much better support for your argument than Moody's.

Anonymous said...

5- and 10-year CDS Ireland is 147bp and 150bp

5- and 10-year CDS for Peru is 115bp and 137bp
Source CMAM close today

Not conclusive evidence. But Brian Lucey does have a point.

By the way, it is a pain to type in this blog. Can't copy paste or backwheel. Or log in as I wish

Ciaran O'H

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