Anglo Irish Bank's attempt to inflict losses on its subordinated bond-holders has received a boost as the value of the securities plunged to below the price at which it is attempting to repurchase them.

The bank is conducting a so-called liability management exercise – buying the bonds back at a discount to their face value to generate capital.

Last month Anglo Irish offered to buy back €1.6bn of debt in return for new bonds worth 20 cents in the euro. The move would generate a profit for the bank and losses for the bondholders.

The price of the bonds plunged last week below that value in the wake of international fears that Ireland was about to seek an EU bailout and default on its debt. The debt was trading at around 18 cents to the euro last week.

Some Anglo Irish bond-holders are attempting to prevent the buyback going ahead. With the securities trading at a discount to the offer price there is an incentive for the bond-holders to take up the Anglo offer.

The bond-holders are threatening to take legal action against the government if the bank persists with the offers. The lenders to Anglo have hired Houlihan Lokey and Brown Rudnick to advise them on a potential law suit.

Meanwhile Bank of Ireland's 27 October benchmark bond issue – the first by an Irish bank under the new guarantee since April – has been losing about 1% of its value per trading day on the secondary markets.

Investors have been selling off slices of the €750m issue, which sold at a hefty 4.2% premium last month, as fears mounted about the government's ability to backstop the bank.