The prevailing worldwide stock market sentiment is that the "worst has passed" and if it has not, the US Federal Reserve stands ready to undertake another burst of "quantitative easing or "QE2" as the market calls it. Quantitative easing is the policy through which the Fed reputedly stimulates the economy by creating money that is used to buy bonds from financial institutions, which then lend it out to businesses and consumers.

The stock market has exploded into a full-blown investment frenzy, the Dow Jones moving from below 10,000 to above 11,000 since the Fed said in early September that it is "prepared to provide additional accommodation if needed to support the economic recovery". The herd's logic is now cemented: it's a win-win situation because if the economy expands, stocks will go up and if the economy contracts, the Fed will launch QE2 and stocks will go up. You can't lose, they say. This however is not an argument I subscribe to.

The one problem with QE2 is that if QE1 worked so well, why does the Fed feel it needs to institute QE2? The Fed is considering it because QE1 failed to deliver the results. The depth of its failure can be seen in the US unemployment rate and the falling GDP levels after the initial burst.

The rise in worldwide optimism has allowed corporations to issue the lowest grade debt at a record rate. In the US, $190bn (€136bn) has been issued this year and we still have the fourth quarter to go.

But even with the increased risk-appetite, Ireland has been effectively closed out of the debt markets. Peculiarly, we were told while the previous bond auction was "hugely successful", we cancelled our remaining auctions.

The NTMA's decision to cancel the bond auctions is a high-risk gamble and could easily backfire. We are backing ourselves into a corner and are now picking a fight with the bond markets. We have also just picked a time and date for that fight and it is in early January when we will have to hold our first auction of 2011. We are playing Texas hold 'em with the debt markets and we are not holding a strong hand.

In my view, it would have been better to continue with the auctions, even if the headline yields were higher. We have now increased the importance of one particular auction, which means the financial markets will be fully focused on Ireland in early January and the pressure will be intense. The worry is the world's sentiment pendulum will have again turned cautious just as we decide to come back to market.

Of course, the NTMA/government strategy has been hailed by our ever bullish stockbroking community as "sensible" and "the right thing to do in the circumstances". As Brendan McDonagh said on the now infamous conference call to Citibank: "We have to have confidence of our conviction that we are doing the right thing... and that the market will deliver in terms of the price of our debt."

If we are able to pass our four-year budgetary plan, these pressures may dissipate and, of course, now would be the ideal time to have an election to improve market confidence, giving the new government a clear run to implement the plan. There is a danger of capital flight before we even get back to the debt markets. Unfortunately, when our finance minister was asked about this very risk on the same Citibank call, he explained that "Ireland is an island, and clearly with any island people tend to stay with their local bank". With comments like that no wonder the bond markets are worried.

I hope I am wrong but cancelling the bond auctions was a high-risk strategy and the history of previous financial crises shows us that in a fight between financial markets and governments, governments rarely win.

Paul Sommerville is a market analyst