IRISH BOND yields reached a new peak above 7 per cent yesterday as contagion from Portugal and Greece added to investors’ fears that the Government’s plans to cut €15 billion from the Irish economy would not stabilise the deficit.

The cost of borrowing by the State later eased after the European Central Bank stepped in to buy Irish bonds. The ECB’s intervention followed a spike in bond yields on Wednesday, which continued yesterday morning. The rise in the yield on Ireland’s 10-year bonds to more than 7 per cent may also have acted as a trigger for the move. The amount of bonds bought by the central bank under confidential deals is not understood to be high.

The yield on Ireland’s 10-year bonds stood at 706 basis points (7.06 per cent), before retreating to close at 682, below its closing level on Wednesday. The spread that investors demand to hold Irish 10-year bonds instead of German bunds also rose to 452 basis points, taking it within two basis points of its euro-era record before narrowing to 425.

Minister for Finance Brian Lenihan said negative developments in Greece and Portugal had helped push Irish Government bond yields up in the secondary market. “The developments in Portugal and Greece have been negative and there has been a corresponding deterioration in Ireland’s position as a result,” Mr Lenihan told the Dáil. “They [Irish bond yields] are very high but it’s a very thin market where Ireland is concerned at present.”

Bond prices have spiked following the collapse of Portugal’s budget talks, while Greece’s tax revenue shortfalls have reignited fears that peripheral European states may struggle to cut deficits.

“It’s just really the periphery weakness in general that is causing the problems. There is not a lot that Ireland can do at the moment,” said Brian Devine, an analyst at NCB Stockbrokers.

The move by a group of Anglo Irish Bank’s creditors to resist a debt swap proposed by the lender is unlikely to have contributed significantly to the pressure on Irish bonds, Mr Devine added.

He said pressure would remain on Irish bond yields until more detail was given on the €15 billion in proposed cuts and investors take a view on whether the plan is credible.

Glas Securities has suggested the Government use money from the National Pension Reserve Fund to provide a stimulus to the economy and counter the planned budget squeeze.