Irish bond yields fall after last auction of the year

(Updates prices, adds ECB meeting notes detail)

By Lisa Barrington and Marius Zaharia

LONDON, Oct (HKSE: 3366-OL.HK - news) 8 (Reuters) - Irish yields fell on Thursday as Dublin held its last bond auction of the year, covering its funding needs for all 2016.

Having been bailed out and locked out of financial markets at the height of Europe's debt crisis, a series of reforms has transformed Ireland (Other OTC: IRLD - news) into one of the strongest performers in the euro zone. Its yields now sit between Germany and Spain's.

The government sold 1 billion euros of 15-year bonds on Thursday, at a yield of 1.65 percent, below the 1.8 percent it paid at an auction in September. The auction got bids worth 2.3 times the amount offered.

The long maturity of the bond further highlights the progress the country has made. Earlier this week, Dublin upgraded its 2016 economic growth forecast to 4.2 percent from 3.8 percent and its 2017 prediction to 3.5 percent from 3.2 percent.

"It (Other OTC: ITGL - news) was definitely a good auction," said Gianluca Ziglio, an analyst at Sunrise Brokers. "Ireland is going to be the fastest growing country in Europe and in terms of its debt-to-GDP ratio that's going to make a big difference."

Analysts say no major euro zone economy has a stronger cash position than Ireland at the moment.

Irish 10-year yields fell 2 basis points to 1.2 percent on Thursday, moving in line with most of their euro zone peers despite the supply pressure. In 2011, those yields traded above 15 percent.

Ten-year Italian and Spanish yields , which hit 7 to 8 percent during the crisis, are now trading at 1.7 to 1.8 percent, higher than the yields on the 15-year bonds Ireland sold.

Auctions of bonds with maturities longer than 10 years have been poor across Europe in recent weeks. Investors are put off by the low absolute level of yields, a function of a weak global growth and inflation outlooks and central bank bond buying.

But the fact that it was the last auction of the year helped Ireland from a technical point of view as some primary dealers had to meet their participation targets.

Ireland's next rating review date is on Dec. 4, by Standard & Poor's. Its rating with the agency is A+, with a stable outlook.

There was little visible impact on euro zone government bond markets from the publishing of minutes from the European Central Bank's Sept. 2-3 policy meeting. They showed policymakers were warned of risks to the euro zone economy from a slowdown in emerging markets led by China.

The bank is considering extending its trillion-euro bond-buying programme and investors are watching it closely for any sign of how close it is to doing so. In the minutes, ECB chief economist Peter Praet said it would be premature to draw conclusions over the lasting impact on Europe of the slowdown in China and other major developing economies.

HSBC said on Thursday more ECB easing would push German 10-year Bund yields to 0.2 percent by the end of next year, a dramatic revision of its previous forecast of 0.95 percent.

German Bund yields were 2 bps lower at 0.58 percent. (Reporting by Marius Zaharia; Editing by Larry King)