THE yield on Irish government bonds fell last night after EU Commissioner Olli Rehn backed cutting the interest charged to access EU bailout loans.
It came as Greece defied its critics to sell €1.6bn of short- term government debt.
Irish 10-year bond yields fell to 10.348pc in late trading yesterday, after hitting close to 10.5pc earlier in the day after the news.
Commissioner Rehn said the interest charged by European rescue funds to lend to Ireland should be cut, backing the government's efforts to renegotiate the terms of the deal.
"In defining the interest rate, debt sustainability should be firmly taken into account and therefore the commission some time ago proposed that we would have a reduction of the interest rate for Ireland, in order to help Ireland overcome its debt burden," he said.
He said cutting the rate below the current level of almost 6pc would not be an incentive for countries that are in less financial trouble to seek help.
"In my view, for good reasons, the focus of the interest rate should be less related to so-called moral hazard, and essentially related to debt sustainability," Mr Rehn said at a press conference.
The better reception for Irish bonds came after Greece sold €1.625bn of government debt yesterday in spite of the latest Greek debt crisis.
Greece sold the debt at a yield of 4.88pc, up from 4.8pc at the previous auction a month ago.
The new debt is due to be repaid later this year so it's a good indication that at least some investors don't think the country will default in the very near term.
The new bond sale coincided with reports that Greece was close to securing a new bailout agreement, just a year after signing up to a €110bn EU/IMF programme last May.
Greece has denied that it is in talks on a new bailout, but that would not rule out increases in the current programme.
European finance ministers are due to meet on Monday when the latest round of the crisis is sure to be the main topic of discussion.
The ministers will vote on approving a €78bn bailout package for Portugal at that meeting next week.
While most countries are expected to back the deal, Finland could be a stumbling block after an anti-bailout party won 19pc of the vote in a general election last month.
The yield on Portugal's 10-year government bonds dropped slightly last night from 9.46pc to 9.39pc.