In addition, European finance ministers are considering giving Ireland more time to pay back loans stemming from the 2010 bailout.

Standard & Poor's on Feb. 11 raised its outlook on Ireland's BBB+ credit rating to stable from negative. Moody's Investors Service Inc. said March 7 an agreement among European finance ministers to consider extending maturities on the Irish bailout is “very significant for Ireland” on top of the Anglo Irish deal.

Moody's rates Ireland at Ba1, the company's highest non-investment rating, with a negative outlook. Ireland in January sold 2.5 billion euros in bonds maturing in October 2017. The government sold 4.2 billion euros of new debt in July, including extra issuance of its October 2020 bonds.

“Ireland could actually leave the EU-IMF program at any time it wants to,” Holger Schmieding, chief economist at Berenberg Bank in London, said by phone. “What Ireland needs is now is not extra money. It doesn't even need longer maturities for its outstanding official loans. What it needs is the implicit promise by the ECB to support countries that leave
official programs.”

Eoin Treacy's view The reliance of countries such as Ireland on bailout programs can be illustrated by this table of outstanding benchmark yields across the yield curve. Until today there were no liquid bonds with durations of 4, 9, 10 or 15 years. Today's issuance of 10-year bonds marks a significant step on the return to normalcy in the country's ability to fund its obligations. Last month's easing of the conditions under which the Anglo Irish Bank promissory notes will be paid back was another positive step and the possibility that the maturity of the remaining bailout loans will also be extended could be yet more positive news in the pipeline.

One point that struck me while visiting the USA last year was how Ireland was not included in discussions of problem EU countries. There seemed to be a widespread belief that the country had taken the hard decisions, made the necessary sacrifices and was reaping the benefits. The compression of what are now 8-year yields from 15.72% in July 2010 to today's 3.63% is testament to this reappraisal of the country's fortunes.

One of the reasons Ireland has been able to avoid the negative publicity of widespread industrial action is because it was able to negotiate a deal with unions in 2010 to accept pay cuts and improved productivity which was due to run until 2014. In an effort to meet the terms of its bailout and to further improve competitiveness, the government sought to renegotiate and extend the deal over the last few months. A deal was signed two weeks ago but unions representing nurses, midwives, police, public sector workers and some factory workers are recommending rejection. In that event, the government will be forced to legislate to achieve its goals and these unions are likely to go on strike.

To what extent this has an impact on government yields remains to be seen. In a worst case scenario the government fails to hold its nerve or the coalition fails to hold together and an election is called. At a minimum there is capacity of at least a pause in the compression of Irish yields at this stage. A sustained move above 4% on the 8-year would confirm this hypothesis.

Meanwhile the stock market, which is dominated by the country's exporters, continues to extend the breakout from its three-year base. The four-month advance has been characterised by a series of shallow reactions one above another and this sequence would need to be broken to suggest more than temporary pause.