THE IMF/EU's endorsement of Irish progress under the bailout did nothing to convince bond investors to stop dumping Irish bonds yesterday.
The yield on two-year Irish bonds hit a staggering 21pc last night. The new high was reached after the IMF, ECB and European Commission held a press conference where they outlined Ireland's progress under the rescue programme.
The yield means that if Ireland tried to return to the markets to borrow, investors would demand 21pc interest per year.
The yield is not only a new record, it is off the scales compared with historic norms. The yield on 10-year Irish bonds, normally the benchmark of market sentiment, actually fell slightly yesterday -- closing at 13.6pc.
The markets are classing Ireland in the same basket as Greece and Portugal, and already looking at the possibility of a second bailout, according to Ryan McGrath a bond trader at Dolmen Securities.
"This kind of aggressive move in the two-year bond means the market doesn't believe Europe has the ability to manage the crisis in the short term, and has a doubt about whether Ireland is really fully funded to the end of 2013," he said.
It is bad news for Finance Minister Michael Noonan's hopes of going to the markets to borrow over the next two years, and there is little he can do to halt the yield rises.
There was some relief after Italy sold five-year government bonds yesterday. It was the first bond sale since Italian bond yields surged on Friday and Monday. Italy sold the five-year bonds at a yield of 4.93pc, up from 3.9pc on June 14.
The yield is the highest since the depths of the financial crisis in 2008, and was only achieved after a massive effort from Italian officials.
"If you look at Ireland, Portugal and Greece, not one of those issuers failed to get an auction done," said Padhraic Garvey at ING Bank in Amsterdam.
"The problem for those issuers was the cost of funding. That made going to the markets uneconomic," he said.