Nowadays I've been writing about the Euro Zone and how their government decisions impacts on the commodities prices and currency appreciation/depreciation. Today I would like to discuss about another impact, specifically about the Ireland Downgrade to Baa3 from Baa1. First of all, it is necessary to explain what are those notes. There is a table below that is very didactic to learn. Note.: U.S sovereign debt is a triple A.
Moody's | Standard & Poor's | Fitch Ratings | Commentaire | |||
---|---|---|---|---|---|---|
Long terme | Court terme | Long terme | Court terme | Long Terme | Court terme | |
Aaa | P-1 | AAA | A-1+ | AAA | F1+ | Prime. Sécurité maximale. |
Aa1 | AA+ | AA+ | High Grade.Qualité haute ou bonne. | |||
Aa2 | AA | AA | ||||
Aa3 | AA- | AA- | ||||
A1 | A+ | A-1 | A+ | F1 | Upper Medium Grade. Qualité moyenne. | |
A2 | A | A | ||||
A3 | P-2 | A- | A-2 | A- | F2 | |
Baa1 | BBB+ | BBB+ | Lower Medium Grade. Qualité moyenne inférieure. | |||
Baa2 | P-3 | BBB | A-3 | BBB | F3 | |
Baa3 | BBB- | BBB- | ||||
Ba1 | Not Prime | BB+ | B | BB+ | B | Non Investment Grade.Spéculatif. |
Ba2 | BB | BB | ||||
Ba3 | BB- | BB- | ||||
B1 | B+ | B+ | Hautement spéculatif. | |||
B2 | B | B | ||||
B3 | B- | B- | ||||
Caa | CCC+ | C | CCC | C | Risque substantiel. En mauvaise condition. | |
Ca | CCC | Extrêmement spéculatif. | ||||
C | CCC- | Peut être en défaut. | ||||
/ | D | D | DDD | D | En défaut. | |
DD | ||||||
D |
Markets around the globe got concerned this week due to some sovereign problems in Portugal and Ireland. In the beginning of April Moody's downgrade Portugal sovereign debt and now was Ireland's turn. Is there some correlation between Ireland downgrade and ECB interest rate increase? For Moody's, yes.
Moody's says that Irish government's financial strenght may suffer as a result of what may be the first of a series of policy rate increases by the European Central Bank to contain the inflation in euro area. The increase can mean less consumer spending and a strengthening of the euro may negatively affect exports.
Inflation is a big problem for every country around the globe. There is a well-known trade-off. "Do I keep the interest rate low and stimulate the economy or rise interest rate, slowing down the post-recession economy in order to contain the inflation?" Especially after the mortgage crisis this trade-off has been experienced by many countries such as China, Brazil, Euro Zone and some countries in Asia. This is a hard problem to solve and that's why in the previews post I wrote that gold will reach $1.500,00 in the coming months...
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