Fury As S&P Downgrade Ireland's Rating

The government agency responsible for managing Ireland's debt, the National Treasury Management Agency (NTMA) raised €600m on world markets this week without any problems.

That's despite a crushing blow from international ratings agency Standard & Poor's, who downgraded Ireland's rating from AA to AA- less than 48 hours earlier.

The result of that was a dramatic increase in the cost of long-term borrowing, which rose to record levels.

The decision also catapulted Ireland back onto international finance headlines once again.

S&P downgraded Ireland's rating blaming the cost of bailing out the banks, and the cost of NAMA for its decision.

It also put Ireland on a "negative" outlook, which means it could consider downgrading Ireland further in the near future.

The two other big ratings agencies - Moodys and Fitch - have Ireland on a "stable" outlook, which means a change is unlikely over the next 18 months.

But in a highly unusual and rare move, the NTMA came out fighting - publicly questioning the S&P analysis and criticising their figures as flawed.

This kind of public challenge to one of the world's biggest ratings agencies is almost unheard of in financial sectors - and analysts are split over whether it was a wise move.

NTMA chief executive John Corrigan said: "It's something we don't like to do but there comes a point when the analysis is just not robust."

He said S&P's estimate of the cost of fixing the banking system was at "the extreme end of any analyst's comment".

He claimed that S&P were viewing the property loans transferred to NAMA as worthless, when clearly that had some value.

Within hours of S&P's decision the cost of borrowing money had risen dramatically for Ireland.

Governments sell bonds on international markets when they want to raise money - these are essentially 10-year-long IOUs, the interest rate reflects the buyers confidence in the State's ability to repay.

These buyers look to the international ratings agencies to give them guidance on how secure their investment is - so when an agency downgrades Ireland, it means a higher interest rate will be charged.

Despite fears that plans to raise money on Thursday would be affected by last Tuesday's decision, the NTMA's raised €600m with ease.

They raised the money through the sale of Treasury Bills, or T-Bills, which are short-term funding, that usually have to be repaid within months rather than years.

The offer was oversubscribed six times over - and, in fact, the interest rates were lower than they were for the previous sale two weeks earlier.

Experts say it shows investors see value in Irish securities.

Ireland's rating is now at its lowest since 1995, but it remains higher than six other Euro area countries, including Italy, Portugal and Greece.

However, the cost of borrowing is still very high for Ireland, with yields for long-term bonds second only to Greece.