Professor John McHale:

There is something to what the Deputy has said and it is a result of the broad quantative easing policies. Quantative easing drives down the yields on certain assets. What happens then is investors, to try to maintain returns on portfolios, engage in what is sometimes called "reaching for yield", where they take on more risk to keep the returns on the portfolios up. They will look to sovereign bonds which might be considered riskier and offer a risk premium. However, as there is demand it drives the price up and drives the yields down, so one gets yields falling across a range of assets.

Sovereign bond yields in the eurozone have been helped by this. However, that could reverse if there was a change in quantative easing policies, which are already being tapered in a US context, or if there was a broader reassessment of risk. This explains, in part, the fall in Irish bond yields which may not be sustainable. Developing a fiscal policy based on the idea that one will always be able to borrow at a rate of 2.5% would not be wise at this point.