SOVEREIGN debt markets dominated headlines yesterday after recession-torn Ireland saw its issuance downgraded by Standard &amp; Poor&rsquo;s (S&amp;P) for the second time in under three months.<br /><br />The ratings agency cut Irish bonds to &ldquo;AA&rdquo; from &ldquo;AA+&rdquo;, after removing its top &ldquo;AAA&rdquo; rating in March, on fears the Eurozone nation may be unable to meet the costs of shoring up its ailing banking sector.<br /><br />An S&amp;P report said: &ldquo;We believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009.&rdquo;<br /><br />Credit default swaps (CDS), derivatives used to insure against specific bonds defaulting, saw spreads on Irish debt widen by 11 basis points on the news, to 225 basis points. As spreads on bonds widen, their prices fall. <br /><br />Government bonds were suffering across the Atlantic last night, with yields on 10-year US Treasuries hitting a seven-month high, raising speculation the Federal Reserve may have to tighten interest rates sooner than anticipated. <br /><br />The yield rises came as investors continued to switch capital from ultra-safe government bonds into equities, keen to get the full effects of the continuing economic cheer.<br />