Irish companies will inevitably be the hidden victims of the sovereign bond blowout as their costs of borrowing will rise, economists have warned.

The cost of borrowing for companies struggling in the recession is directly linked to soaring sovereign interest rates and the crisis facing the sovereign is tightening the squeeze on private companies even more.

The costs of insuring bonds issued by many banks and Eircom against default soared last week on world credit markets, according to CMA Datavision and Bloomberg market figures.

"The scale of the real recession is quite remarkable. Ireland has lost 20% of its GDP," said Jamie Dannhauser, senior economist at London's Lombard Street Research. "One has to bear in mind always that, whether it is a financial or non-financial company, the cost of borrowing is always linked to the government bond curve. That is the problem of having liquidity shocks to the government bond market because it shuts out everyone who is trying to issue fixed income. Clearly in the case of Ireland most domestic leading companies will be priced off the sovereign rates," said Dannhauser.

Ben May, senior economist at Capital Economics, said there would likely be more pain for consumers and companies as more than €15bn may need to be taken out of the economy if growth were to falter more. The blow to consumer spending of a sovereign bailout was likely being underestimated, May said.

On the world's credit default markets, Irish companies last week featured as the most at risk of defaulting on their private bond issues. Seven Irish firms, including Anglo Irish, AIB, Eircom and Bank of Ireland, featured among the top 18 companies in the world whose creditworthiness had deteriorated the most.

The Irish Association of Corporate Treasurers, whose president Brendan Murphy was recently appointed as finance director to the National Treasury Management Agency, could not be contacted for comment.