ANALYSIS:THE EUROPEAN Central Bank's €14.3 billion purchase of government bonds last week brought its total holdings to just over €110 billion.

Although this radical measure is not uncontroversial, it has proved successful in the past two weeks in calming the bond market and bringing Italy and Spain back from the edge.

Yesterday, both countries’ bonds continued to trade at relatively low and stable rates. That the ECB was prepared to intervene to the tune of €35 billion in two weeks created significant additional demand, supporting the price of these bonds, and lowering their yields.

As important as the additional demand was likely to have been, the signal was sent to market participants that betting against Italy and Spain wasn’t a one-way wager. That signal has helped Ireland too.

As recently as a few short weeks ago, commentators were stating with utter certainty that there was no chance whatsoever of the Irish State being able to tap the markets by 2013, as envisaged under the terms of the EU-IMF bailout. Even a Cabinet Minister allowed himself to slump onto this defeatist bandwagon.

Although Ireland’s solvency is likely to remain on a knife edge for some considerable time, there are simply too many highly volatile variables to be sure about how Ireland and the world will look in two years.

On balance, and taking domestic and international factors into account, there is much more reason to be pessimistic than optimistic.

But amid such gloom, it is worth noting that, in just five weeks, yields on the 10-year benchmark bond have fallen by five percentage points. Yesterday, they touched lows last seen in April, at a little above 9 per cent.

If yields were to remain on the same trajectory over the next month as in the past month, Ireland would be in a position to go back to the market.

Admittedly, this is more the stuff of Michael Noonan’s dreams than a likely scenario, but few would have thought in mid-July that yields would have come in so much in so short a period.

Much of this 500 basis point narrowing is attributable to the calming of a particularly acute bout of panic in the markets for small peripherals’ bonds in the first half of July. But some of it does represent a relative improvement in perceptions of Ireland.

Yield developments when compared to Portugal provide the evidence. After the sovereign debt crisis went critical in May 2010, Irish and Portuguese yields moved in lockstep before Ireland decoupled in early October as confidence in the country evaporated. For the next six months, Irish yields were as close to those of Greece as they were to Portugal’s.

But then Portugal experienced its own confidence evaporation. Rescue followed in short order.

But despite being in the same bailout boat, Ireland continued to be considered the riskier bet. That has now changed, as the chart shows, and Irish yields continue to go in the right direction. With international developments capable of making this an irrelevance very quickly, it by no means suggests salvation is at hand. But at times like this, one clings to anything that gives cause for hope as a shipwrecked sailor does to anything that floats.