LONDON: Irish 10-year bond yields dipped on Monday as an upgrade to the country's credit rating by Fitch countered selling pressure ahead of what is expected to be a close-run election on Feb. 26.
Fitch raised Ireland by one notch to A late on Friday.
One opinion poll on Saturday showed Prime Minister Enda Kenny's conservative party had halted a recent slide in popularity but it fell sharply in another, maintaining the potential for an inconclusive outcome to the poll.
Ireland's economy is forecast to be Europe's best performing for the third successive year in 2016 and Fitch cited growth last year of about 7.0 percent and improving debt dynamics as key drivers for the upgrade.
The move will not trigger any buying by investors tracking bond indices. A Moody's upgrade of its Baa1 rating could have a bigger impact than the Fitch move.
Nevertheless, analysts said it should provide some support for Irish bonds.
"Ireland is treated more like the core than the periphery given its improving growth and fiscal dynamics, and that's being recognised by the ratings agencies," said RIA Capital Markets bond strategist Nick Stamenkovic.
"There almost seems to be a virtuous circle for that country. Obviously you have the elections coming up so you might see investors taking a more cautious stance but the underlying fundamentals are very positive."
Irish 10-year bond yields were 2 basis points lower at 0.99 percent. In recent weeks, the bonds have underperformed those of high-rated countries commonly referred to as "core", such as France, but also those of highly indebted "peripheral" countries such as Italy and Spain.
Investors are also nervous about an impending referendum that could see Britain, one of Ireland's biggest trading partners, leave the European Union.
Major funds, such as Aberdeen Asset Management, have exited overweight positions in Irish debt.
Franklin Templeton's Michael Hasenstab, who bought 10 percent of the Irish bond market after the country was bailed out, told Reuters on Friday that the recent underperformance was "short-term noise".
He did not comment on the election, called by Kenny last Wednesday, but praised the country's "strong" economy and dismissed any lasting fallout from the Brexit debate. Hasenstab has recently exited his position in Ireland, having made hefty profits on his 2011 bet.
Also due for a rating review on Friday was Finland, but Moody's gave no update, which meant the recession-hit Nordic country remained part of a select club of triple-A-rated sovereigns. Markets had been expecting Moody's to downgrade Finland's rating by one notch to Aa1.
Finnish 10-year yields were down 1 basis point at 0.55 percent.
German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 1 basis point to 0.295 percent.
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