TEN-YEAR bonds advanced slightly yesterday after Central Bank governor Patrick Honohan said bond markets would improve.

Yields on Ireland’s 10-year paper fell fractionally to 11.07 per cent. However, the spread, or yield premium over benchmark German bunds, stood at 809 basis points (just over eight percentage points) yesterday.

There has been a “spillover” effect on the markets for Irish debt from discussions on Greece, Mr Honohan told a press conference yesterday. Market conditions are now worse than when Ireland sought a bailout last year, but they would improve as “necessary” action was taken to restore confidence, he said.

The Government “will go back into the markets just as soon as it judges that’s the right thing to do”.

Yields on Irish short-term money remained higher than on longer-maturing bonds yesterday. Ireland’s three-year bonds were yielding 13.5 per cent, while two-year money remained above 12 per cent.

In a morning note, broker Bloxham said Ireland wanted to “tap” investors for funding in 2012 before its EU-IMF rescue package runs out the following year. “But investors believe Ireland will be unable to return to the market and instead will have to tap the European Union’s permanent rescue fund in 2013, which might require some restructuring of privately held sovereign debt,” it said.

The high yield on Ireland’s short-term paper reflected this medium-term risk, it said.

Economist Conall Mac Coille of Davy Stockbrokers said the Irish bond market was broken for the time being and was “bereft of any natural investor base and thereby condemned to scant liquidity and exceptional volatility”.

Dermot O’Leary of Goodbody Stockbrokers said the actions of European policymakers were of much more importance than their words.

“In the absence of collective European action, countries such as Ireland have little chance in convincing markets of their creditworthiness over the short-term at least,” he said. – (Additional reporting - Bloomberg)