Irish sovereign borrowing costs rose and the gap widened with German bonds yesterday as comparable Spanish and Italian costs declined. Is this election uncertainty? Or is it increased Brexit risk? Or is it both?

Take your pick. All polls point to a fragmented political landscape after Friday, with the increasing prospect of a hung Dáil raising questions in financial markets over the composition and durability of the next administration. At issue in coming days is whether voter sentiment shifts to avert a post-election stalemate in which no obvious combination of parties can form a stable government.

Then there is Brexit referendum next June, which presents a cascade of economic and political dangers in the Irish setting.

Sterling hit a seven-year low against the dollar after London mayor Boris Johnson backed the “Leave” campaign, a move which also sent the pound lower against the euro. Whatever the ultimate implications for Irish exporters and importers, this smacks as a sharp foretaste of volatility to come in the four-month countdown to the plebiscite.

All of this forms the backdrop to market moves on Monday which the premium investors charge hold Irish 10-year bonds over bunds rose 0.033 percentage points. At the same time the premium between Spanish and German bonds contracted by 0.043 points and the Italian premium tightened by 0.035 points.

“Ireland is the only one wider on the day. Is that the polls over the weekend or is that Brexit?” asked one Dublin trader.

To be sure, Ireland’s sovereign borrowing cost remain very low by historical standards. The interest rate on 10-year Irish bonds yesterday evening was still below 1 per cent and indeed lower than at the very outset of the election campaign.

That hardly signals alarm or deep anxiety at the outlook for the poll on Friday. But the final judgment of markets will centre on the result itself, the specific policies and structure of the incoming government and the actual performance of the Irish economy. In this sense at least, it’s early days yet. Still, investors are taking stock of the situation.

“At the moment people are asking about it. It’s a concern.There’s a bit of disbelief that the Government is not doing better,” says another Dublin figure.

“The baseline view would be that three of the four are not classic anti-austerity parties. No-one is expecting a radical change in policy. No-one is expecting a radical coalition of the left.”

Manifesto

In such accounts, market types may look with greater concern at manifesto commitments to increase the bank levy and put the squeeze on variable mortgage rates than at uncertain opinion poll trends.

This assumes that a government emerges and that the State is not thrown into a succession of elections.

Any kind of Fine Gael-Fianna Fáil pact would certainly jolt Irish politics but such an alignment, if it survived , would probably not jolt markets. By the same token, such assessments assume the formation of an “establishment” administration and no jolt via Sinn Féin and its hard-left bedfellows in government.

In its election note, Morgan Stanley said another Fine Gael coalition “looks the most likely outcome” in light of polls. “But forming a government may prove difficult; continuity is not guaranteed. Ireland has outperformed, but there is still repair work to do and the economy looks vulnerable to external shocks.”

The Brexit referendum presents a big potential shock, of course.

Thus sterling’s 1 per cent against the euro yesterday is illustrative. If sustained, such a reduction would lessen the value of Irish exports to Britain. It could also cut the cost of imports from Britain.

But first things first.

The general election now looms – and it’s down to the last. Belt up.