RATINGS AGENCY Moody’s has slashed its rating of Ireland’s government debt by a massive five notches, lowering its ranking of Irish debt from Aa2 – its third-highest possible ranking – to Baa1.

The downgrade, which had been warned of by the agency last month, leaves the Moody’s appraisal of Ireland’s government bonds to be a mere three notches above ‘official’ junk ratings.

The downgrade follows a similar move by Fitch last week, which became the first of the three major ratings agencies to push Ireland into B territory.

Announcing its decision, Moody’s said it had downgraded the rating so significantly because of the “crystallisation of bank-related contingent liabilities” that the Irish government had decided to shoulder.

“The increased uncertainty regarding the outlook for the Irish economy – an additional determinant of today’s rating action – is the result of the continued severe downturn in the financial services sector,” a Moody’s spokesman said.

Gary Jenkins, a researcher at Evolution Securities, said the move “just brings [the rating] in line with the Fitch BBB+ rating.”

The Wall Street Journal said Moody’s had warned of an even bigger downgrade in the future, if the country’s debts to wrestle control of its public spending and growing national debt proved unsuccessful.

Subsequent downgrades could firmly throw Ireland into ‘junk bonds’ territory, essentially a warning to investors that Irish government bonds are not worth investing in.

The price of second-hand Irish government bonds has spiked again on the markets; having opened just over 8.25% for ten-year bonds, the cost of borrowing stood at 8.419% just before noon.

That spike has sent the spread in borrowing costs for Ireland and Germany to 5.40%.

The value of the Euro fell moderately after the downgrade, sliding modestly against the dollar and pound.