Irish bond yields dipped today after Moody's lifted the country's rating by two notches, citing strong growth dynamics which are expected to speed up fiscal consolidation and cut the country's debt. 

At around 120% of GDP, Ireland still has one of the most bloated government debt burdens in the euro zone. 

But with the economy set to grow at 2% this year, and further rating upgrades expected, Irish bonds should continue to outperform other indebted states from the bloc's periphery. 

Moody's upgraded Ireland's credit rating from Baa3 to Baa1 after European markets closed on Friday, bringing its view into line with the other two main ratings agencies. 

Standard and Poor's is due to review Ireland's rating on June 6, with many hoping its current positive outlook means another upgrade is on the cards. Fitch may then follow suit in mid-August.

Ireland's 10-year yields dipped four basis points this morning to hit 2.65%, just above last week's record lows.

Its bonds outperformed peers in Spain, Italy and Portugal, whose yields dropped 1 basis points to 2.96, 3.06 and 3.77% respectively. 

In another boost for the periphery, Portugal exited its €78 billion euro bailout, taking back control of its public finances from the European Commission, European Central Bank and International Monetary Fund. 

The rescue programme assembled in 2011 for the nearly bankrupt country concluded with Portugal's budget in much better shape and borrowing costs at eight-year lows.

The country has chosen not to apply for a precautionary credit line, a move that will focus investor attention on a mixed economic outlook where unemployment stands at 15% and GDP dropped 0.7% in the first quarter of 2014. 

Some market participants are worried that the Government's plans to partly reverse salary cuts in the public sector and possibly cut taxes next year could undermine efforts so far.