Irish Nationwide suffered a massive bond sell-off last week as investors dumped debt holdings in the building society in the wake of two credit rating downgrades within four business days.

Yields on Irish Nationwide's most recently issued bond have exploded since Fitch slashed the lender's credit rating last Wednesday over the "uncertain outlook" on its Irish and UK property lending.

Within two days, downward pressure on the bond's price had boosted yields 27% as spreads topped 1,000 basis points, far higher than other Irish financials. The five-year fixed-rate bond was issued in June 2007 with just a 63-point spread.

Fitch's action followed an earlier downgrade by Moody's, which knocked Irish Nationwide down to Baa1, the lowest investment grade. The agency said the downgrade reflected its exposure to commercial property and development, which now accounts for about 80% of the loan book, the rapid deterioration in property values in Ireland and the UK, and an expectation of weakening asset quality as the Irish and UK economies deteriorate.

According to Moody's, Irish Nationwide's sky-high bond prices actually imply a rating of B3 – eight grades below its revised rating and deep into speculative territory.

Yields on financial bonds have reached 10-year highs this year as the credit crunch and the spectre of bank failures have led investors to price in the possibility of bond defaults – almost unimaginable just over a year ago.

Chief executive Michael Fingleton has rejected the rationale behind the downgrades and said in a statement it has "increased its liquidity and capital base" since the end of 2007. The society's total and Tier 1 capitals rose from 12.9% and 8.6%, respectively, to 15.4% and 11.5%, the society said.

Contacted by the Sunday Tribune, however, a spokesman declined to provide figures showing an increase in deposits or other capital sources.

Irish Nationwide has taken a cue from the ratings agencies and begun diversifying its board, however, having appointed former assistant Dublin city manager Seán Carey as a non-executive director.