ANALYSIS:If bond jitters return it will be much harder to argue the situation is "manageable", writes DAN O'BRIEN

YESTERDAY WAS a remarkable day. Today would be extraordinary if cash is forced on Minister for Finance Brian Lenihan in Brussels tonight when he meets his 15 euro zone counterparts.

Before discussing what might happen today, consider what did happen yesterday.

Despite talk of an Irish bailout echoing around the world, interest rates on Irish government debt descended from the stratosphere. A big fall in yields was registered for the second consecutive trading day. Indeed, the moves on Friday and Monday combined to generate the largest two-day narrowing in yields since May 10th-11th – the immediate aftermath of the unveiling of the EU-IMF bailout deal.

The yield on bonds to be repaid in two years fell from nose-bleed peaks at lunchtime on Thursday, when they hit 6.86 per cent, all the way down to 5.32 per cent last evening.

While this is still far above usual levels, it is back to a level that makes short-term borrowing just about affordable.

The yield on the more closely watched 10-year bond also narrowed, but by less. It stood at just under 8 per cent. That is still unaffordably high.

Market developments on Friday and yesterday give credence to the view that the panic in the euro zone bond market in recent weeks was the result of Germany’s correct but appallingly timed statements on how the burning of holders of dodgy governments’ bonds should be arranged in the future.

Since Germany and the other big EU countries gave reassurances about the matter last Thursday, yields on all weak governments’ bonds – Greece, Ireland, Italy, Portugal and Spain – have fallen.

The calming of the panic yesterday came despite revised figures from Greece which show that country’s budgetary position to be even worse than previously believed – a revelation that would normally have rattled sentiment, with knock-on effects for all the wobbly countries.

It didn’t.

Nor did the fevered speculation about a lifeline being forcibly tied around Ireland by its euro partners.

The pressure on Ireland to accept a pre-emptive bailout started on Saturday when a reliable news agency report, which cited an official, said that the European Central Bank (ECB) wanted Ireland to accept help.

Yesterday, the only figures of substance to advocate this course of action were members of the ECB’s governing council.

No less a person than the number two at the Frankfurt bank, Vítor Constâncio, a Portuguese who was speaking in Vienna, suggested that Ireland tap bailout cash to pump into its banks.

In Madrid, Spain’s central banker in chief, who automatically has a seat on the governing council of the ECB, said he thought Ireland should make a “final decision” on how it will restore stability.

Central bankers are notoriously tight-lipped. That two members of the ECB’s 22-man governing council spoke as they did yesterday makes the bank’s position as clear as crystal – it doesn’t believe Ireland can make it alone and wants other governments, via the bailout fund, to get stuck in to help us out.

What caused this sudden change of position?

That is not entirely clear, but figures released on Friday by the Irish Central Bank could have had a lot to do with it.

They showed that the Central Bank is providing €35 billion in liquidity to the commercial

banks via an “extraordinary” line of funding. It is doing so because the ECB will not accept the collateral being offered by the banks. This is not a good development.

It is against this backdrop that Lenihan travels to Brussels at lunchtime today. When he dines with his counterparts from the Euro Group tonight he is likely to receive a lot more attention than he might care for. The onus will be on him to convince his ministerial counterparts that the situation is as “manageable”, as he repeatedly says.

The force of his case will depend a great deal on the vagaries of the bond market. If it calms further today, he will be under less pressure, and will be able to argue that the recent panic was not his fault, but the result of Angela Merkel’s ill-timed intervention. It will be much easier to demand more time.

If, on the other hand, market jitters return, he will be in a much weaker position.