I think the end game is approaching. The game at the moment is that the state issues bonds, which are either bought by the Irish banks on instruction from their shareholder (the Government of Ireland), and they are then recycled to the ECB under their quant easing program, or the short dated stuff is bought by brave yield chasers. The important fact here is that issuing 3mth bonds, does not address the finance needs of the state in the current year. That’s the current game.
The end game, which is not far away, is that the ECB ceases to repro the Irish Government Bonds on the basis that sufficient liquidity is available in the market (and BTW to repro State bonds breaks their charter) , the short bond investors take their money off the table, and the Irish Government cant access debt, regardless of premium.
What happens next? I’m not sure but the Government is then out of cash so either a third party international finance institution provides liquidity under severe conditions, (read IMF or ECB), the state defaults setting off an international panic which will make Lemans look like chicken feed, or the Irish people take control and administer their own medicine(least likely IMHO). Either which way not pretty.
Timeline - September 09.