* Demand at Irish syndicated bond sale tops 9 bln euros
* Irish 10-year yields fall to eight-year lows
* Sale may boost confidence Portugal can follow suit
By Marius Zaharia
LONDON, Jan 7 Ireland's 10-year government bond yields plunged to eight-year lows on Tuesday as the country's first debt sale since it exited an international bailout drew bumper demand.
Investors bid more than 9 billion euros for the new 10-year bond sold via syndication, about three times the amount expected to be priced later in the day. The bond was offered with an yield of about 3.5 percent, a small premium over Dublin's current 10-year benchmark.
Analysts said the deal was final confirmation that investors trusted Ireland to recover unaided from its property market crash, having just come through an 85 billion euro EU/IMF bailout programme undertaken in 2010.
Irish 10-year bond yields fell 9 basis points to 3.27 percent, their lowest in eight years, according to Reuters historical data. That brought the premium they offered over German Bunds, the euro zone benchmark, to 138 bps, its lowest since April 2010. The spread over UK gilts fell to 30 bps, the tightest since March 2010.
"This is a very well received issue ... it is pretty supportive of the Irish going their own way," DZ Bank strategist Christian Lenk said.
"Obviously anything could happen ... but it increases the probability that Ireland is out of the woods by a very convincing degree."
Some analysts said the deal offered proof of increased market access and should be supportive for Ireland's credit ratings. Moody's, the only big agency to rate Ireland below investment grade, is due to review its ratings on Jan. 17.
"A successful sale today ... arguably increases the odds of Moody's opting to return the country to investment grade," said Richard McGuire, senior rate strategist at Rabobank.
"A return to investment grade across the board would provide an additional fillip as regards the long-running bullish momentum in the Irish debt market."
The cost of insuring Irish debt against default via five-year credit default swaps fell 4 bps to 110 bps, the lowest since November 2008, according to data from Markit.
PORTUGAL MAY BENEFIT
Rabobank's McGuire said evidence that a euro zone country was able to successfully exit its bailout could increase confidence that Portugal could follow in Ireland's footsteps when its aid deal comes to an end later in 2014.
Portuguese bonds have outperformed other euro zone debt this year, with 10-year yields falling around half a point to 5.53 percent since the end of 2013 as an improving global growth outlook increased appetite for riskier assets.
"I would expect Portugal to tap the market in coming weeks," DZ Bank's Lenk said.
Junk-rated Portugal is due to be reviewed by Moody's this Friday and by Standard& Poor's a week later and analysts expect the ratings at least to remain stable.
"Ratings are bottoming out," KBC strategist Piet Lammens said. "There is a general idea in the market that the European crisis is almost over."
Reflecting the appetite for higher-yielding euro zone debt, Spanish 10-year yields fell 10 bps to 3.81 percent
Top-rated German Bund yields were 1 bps lower at 1.90 percent.