IRISH BORROWING costs climbed again yesterday as the Government’s four-year plan failed to calm markets.

The yield on Irish 10-year bonds rose by 0.45 percentage points to 8.86 per cent. This pushed the spread, or premium investors demand to hold Irish bonds over benchmark German bunds, up to 617.6 basis points.

Contagion from the Irish difficulties, meanwhile, swept across Europe, with Spain’s borrowing costs reaching new highs.

Market worries will not recede until the IMF-EU rescue deal is seen to be “done and dusted”, a Dublin broker said, and passing the budget was an “integral part” of this. “A lot of people are nervous about the budget,” he said, adding that the political debate surrounding it was not helping. “The longer it drags out, the more uncertainty there is.”

Peripheral euro zone government bonds remained under pressure as a two-notch sovereign downgrade by Standard and Poor’s deepened concern that Ireland’s fiscal crisis will spread.

The yield on 10-year Spanish bonds broke through the critical 5 per cent level on concern that it will struggle to finance its budget shortfall. The spread between Spanish government bonds and German sovereign debt touched a euro-era record of 249 basis points.

Portuguese bonds were also hit as workers walked out in the nation’s biggest strike for 22 years.

“There’s a lot of fear and concern,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf, Germany. “The key issue is if, or by how much, Spain will get dragged into this. Ireland and Portugal are manageable in terms of cost. The market is worried that, given the size of Spain, it’s a different animal.”

The euro strengthened 0.1 per cent to $1.3374, trimming this week’s drop to 2.2 per cent. – (Additional reporting by Bloomberg)