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Peripheral Europe closes in on US 10-year Treasury

It has now become cheaper for Ireland - despite being a major casualty of the euro zone sovereign debt crisis - to borrow money than the U.S. government, showing the growing divide between market perception and economic reality, according to analysts.

The yield on the Irish benchmark 10-year bond fell below that of its U.S. counterpart on Thursday afternoon. It has since pushed even lower and reached 2.485 percent on Friday morning, helped along by the credit easing measures announced by the European Central Bank (ECB).

This contrasts significantly with the 14 percent-plus yield seen in July 2011 before the nation had to ask for bailout loans, enforce stiff austerity measures and overhaul the banking system that brought the country's economy to its knees.

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The yields - which have an inverse relationship to a bond's price - of other peripheral countries aren't far behind. Yields on Spanish benchmark debt hit a record low on Friday morning, falling 13 basis points to 2.695 percent, while Italy's sank 12 basis points to 2.807 percent. Meanwhile, the yield on the U.S. 10-year Treasury dipped to 2.5680 percent with investors eagerly anticipating a payrolls number from the Bureau of Labor Statistics.

"Sentiment is still overshadowing economic reality," Gemma Godfrey, the head of investment strategy at Brooks Macdonald, told CNBC via email, adding that markets are overshooting after such big statements by the ECB.

Bill Blain, a senior fixed income broker at Mint Partners, called the narrowing of spreads between the U.S. and peripheral Europe "bonkers cubed."

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Italy's debt is growing and there has been precious little reform, he said, adding that Spain is making good efforts to reform but is "mired in youth despair, and the rise of dangerous politics."

However, he believes that Ireland is essentially a decent economy if it can overcome the very real setback and depression inflicted across the populace with many well-educated people leaving the country in search of work.

Traders work the floor of the New York Stock Exchange.
Getty Images
Traders work the floor of the New York Stock Exchange.

Creditworthiness is no longer a key factor in investment decisions, Marc Oswald, a strategist at Monument Securities told CNBC via email, which he said sadly does reflect the vicissitudes of reality. Standard & Poor's currently has a AA-plus credit rating for the U.S. and a BBB-plus rating for Ireland, although an update for the latter is due on Friday.

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"It is crazy," Oswald said, but explained that with the ECB introducing a negative deposit rate for Europe's banks will force them to pile money into short term government bonds so they are not generating a negative income. Added to this, negative rates will also force cash out of money market funds and into fixed income, he said, meaning bond investors will be looking for the more attractive long-dated yields of peripheral debt, thus helping them lower.

Oswald said that bond investors that bemoan this poor credit quality will underperform their peers and could even be out of a job.

"This is not an investment strategy, but a job preservation strategy," he said. "In the long run this is the road to the next crisis, but there are very few people who take a long-term view when it might cost them their job."