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State's cost of credit soars on default fear

THE cost of borrowing for the State soared yesterday over concerns about the risk of default.

There are fears that Germany's Angela Merkel (right) will refuse to back down on demands to increase Ireland's corporation tax rates ahead of the EU summit today and tomorrow in Brussels.

Irish two-year bond yields, which have an inverse relationship with prices, leapt nearly 1 percentage point to 10.7pc at one stage.

The extra yield investors demand to hold Ireland's 10-year bonds instead of German bonds climbed to a record. In addition to Ireland's woes, Portuguese bonds rose for fears that the minority government would crumble. Two-year bond yields jumped to 6.62pc at one stage which was a quarter of a percentage point rise.