The chance of an Irish bank defaulting on its debt has moved higher in recent weeks according to data emerging from the market in credit default swaps, derivative instruments that insure counterparties against a failure by a company to make good on its credit obligations.

Credit default swap rates on Irish banks have been inching up with Anglo Irish Bank leading at 204 basis points, up from an interim low of around 150 last month, meaning the cost of insuring its debt stands at slightly more than two cent per euro.

Just a year ago, before the onset of the credit crisis, Anglo credit default swaps were trading at just 14 basis points. In March, when the bank was beset by rumours of collapse, the swaps rocketed up to 475.

Anglo's peers are all believed by the market to have a smaller chance of defaulting, with Irish Life & Permanent at 174 basis points, Bank of Ireland at 125 and AIB at just 110. Compared to this time last year, when defaults were considered an extremely remote possibility, all the banks are at historically high levels.

The market for credit default swaps is estimated at $2 trillion annually and currently stands at $62 trillion outstanding, drawing the attention of financial regulators concerned that a large-scale "credit event" - a series of substantial defaults - could lead to a catastrophic and uncontrollable unwinding of positions.

As the cost of funding rises, the risk of default is understood to rise accordingly, which makes refinancing harder, thus pushing credit default swap rates higher in a kind of vicious circle as counterparties seek ever more insurance against failures. This has caused the market to nearly double in just a year.

Banks have had some of the widest spreads around, with the exceptionally shaky Icelandic institutions currently top of the probable-default heap at the moment.