Ireland's main objection to S&P's analysis is that the agency's debt calculations include the bonds issued to Irish banks in exchange for the impaired property loans which the National Asset Management Agency, the state's so-called bad bank, has taken over. In turn S&P puts no value on the property assets acquired by Nama, even though, as Mr Corrigan points out, the collateral for 25 per cent of the loans are properties in London.

"Is S&P seriously suggesting that property is worth nothing?" said Mr Corrigan.

As a result, S&P forecast Irish debt to peak at 137 per cent of GDP, against government estimates - which exclude the Nama bonds - at about 94 per cent.

S&P puts the cost of the bank rescue at €50bn, which Mr Corrigan describes as "at the extreme end of any analyst's comment". The government's own estimate of the cost of the bank rescue is about €25bn, or 15 per cent of GDP, which officials said is in line with what happened during the Nordic banking crisis in the early 1990s.

"They have to net off the underlying assets, and that is essentially our issue. They don't allow for the €7bn that we hold in Bank of Ireland and AIB. They don't allow for the underlying value of the Nama assets. They don't attribute any value whatsoever. You can argue about what value is there and commentators discuss that all the time. But to attribute no value to it is not a realistic approach in our view and, exceptionally, we have taken issue with the rating agency," said Mr Corrigan.

Eoin Treacy's view Irish 10yr bond yields have been largely rangebound since early 2009 with an upper boundary near 6% and are currently trending in that direction having sustained a progression of higher reaction lows from earlier this month. CDS spreads broke above 300 basis points on Wednesday and a sustained move below 265 bps would be required to question scope for some additional upside.

Both of these metrics reflect the considerable challenges which remain for the Irish economy, not the least of which are the ongoing bank recapitalisations and the blanket guarantee of all senior and subordinated bank bonds which is up for renewal in September. In my opinion, the government will feel obligated to renew the guarantee because to fail to do so would further damage the funding ability of the banking sector in which it now holds a majority stake. The ability of the country to fund its deficit through the capital markets remains predicated on the continued resolve of politicians to follow through with the spending cuts and revenue raising measures already committed to under the government's agreement with the European Commission.

In the meantime, the Irish downgrade has also put pressure on other vulnerable European credits. Greek 10yr yields continue to rally towards the May high near 12%, Portugal's 10yr has sustained a broad progression of higher reaction lows for most of the year and are currently rallying, having found support in the region of 5%. Both Spanish and Italian yields continue to contract and would need to break short-term progressions of lower rally highs to question scope for continued compression.

German Bund yields have accelerated lower which has exacerbated the relative underperformance of Irish, Greek and Portuguese spreads which have come under renewed upward pressure over the last couple of weeks. Assuming that the surge in Bund purchases is close to at least a mean reversion correction, as appears likely, these spreads could catch some relief in the not too distant future.

While Spanish and Italian yields have performed better than those for Ireland, Greece and Portugal, CDS spreads for the all five of the above country's have expanded over the last month and indicate investors still group Portugal, Ireland, Italy, Greece and Spain as comparatively high risk credits.