IRELAND'S cost of borrowing dropped to a more than two-year low yesterday, despite a brutal assessment of prospects for the economy here from analysts at Citi.
The yield, or interest rate, on Irish government bonds due to be repaid in 2020 briefly dropped below 5pc yesterday for the first time since May 2010.
Good support in the markets for the Irish paper helped counter the wider economic gloom that saw the euro down against the dollar and enthusiasm for other risky assets very much on the wane.
Positive sentiment towards Ireland held up despite a downbeat report from economists at global bank Citi.
Head of European Economics at the bank, Michael Saunders, told Bloomberg that there was still a risk that Irish debt levels were unsustainable, if growth was slower than expected or failed to lift the economy.
"Ireland faces an almost impossible task to get back to fiscal balance," Mr Saunders said. Visits to the country showed "life is tough, very tough, and not getting that much better anytime soon", according to Mr Saunders.
Citi is influential but markets shrugged off the comments yesterday, with the yield on the benchmark Irish bond hovering close to the 5pc mark throughout the trading session, and shorter-term bonds also back at pre-bailout levels.
"Ireland is still the good student," said Alberto Gallo, head of European credit research at Royal Bank of Scotland Group Plc in London.
"Ireland is making good progress on reform and fiscal measures."
However, Mr Saunders said the economy remained the key risk for lenders to Ireland.
"If it doesn't come right, and I don't believe it will, then the math becomes difficult."
He said it was not because the financial crisis was not being tackled.
"I stress that it's not by lack of effort," Mr Saunders said.
"It's just the scale of the overhang and the fact that Ireland has little ability to stabilise its debt because it's so vulnerable to global shocks." (Additional reporting, Bloomberg)