Michael Somers of the NTMA

Everyone knows only the bravest of souls are buying Irish bank stocks, but not too many people are queuing up to buy Ireland Inc either. While IDA-supported foreign direct investment is holding up relatively well, bond dealers and traders in credit default swaps (CDS) are betting that the Irish economy is in for a serious lurch downward that could last at least two years, possibly longer.

Ireland's banks have had to pay a significant premium to get their bonds away and the most recent bond issue by the National Treasury Management Agency (NTMA) involved Ireland having to cough up a spread of 25 basis points above market norms to get a €4bn bond deal away.

By next week it's possible Ireland's CDSs– instruments bought to insure against a country defaulting on its bond debts – may creep towards 250 basis points, new territory that will unnerve those paid to worry about Ireland's diminishing status on the debt markets.

By next week Ireland's risk of credit default- as measured by the CDS market – could exceed that of Saudi Arabia and possibly Greece. Already the CDS market is putting heavily indebted Italy below Ireland in terms of the risk of bond default. Ireland last week was trading at 225.4 basis points, meaning it cost €225,400 to insure €10m of Irish government bonds.

The inextricable link between Ireland, the corporate body, and the banks was made clear by the recent arrangements in relation to Ireland's €4bn bond. The government bond was issued before an issue from the banks, as part of arrangements agreed between the Department of Finance and the banks.

As one banker, with knowledge of recent government discussions told the Sunday Tribune, "it was agreed the government would go first''. He said this was "only fair" if the banks were going to be trading on the name of the Irish state via the guarantee.

The Irish government is not the only European sovereign suffering from a plunging credit profile. Swaps for the US, UK, France, Spain, Italy and Germany also surged last week. While the Europeans are fast becoming sicker, the real sick man of the world debt markets is Argentina, which last week was dealing with an eye watering CDS price of 4,050 basis points.