Updated at 17.19

THE VALUE OF the Irish government’s short-term borrowing has rocketed to new all-time records this lunchtime, as rumours circulated among investors that Ireland had missed a scheduled interest payment on its government bonds.

This afternoon, Allied Irish Bank released a statement to confirm that “payment will be made”, following the market speculation.

Earlier, markets gossip site RANsquawk tweeted rumours among investors that Ireland had missed a schedule ‘coupon’ payment – essentially an agreement that the state will pay the fixed interest rate on its bonds at a certain time.

The suggestion that such a repayment might have been missed – even though there would be no reason for Ireland to miss a repayment, especially given its access to €85bn of emergency funding from the EU and IMF – has sent the value of its short-term bonds through the floor, as investors react to the possibility of what would realistically be tantamount to a sovereign default.

Second-hand trading of Irish two-year bonds – which had opened with an interest rate of 9.68 per cent – had shot above 10 per cent, a new all-time record, at the time of publication:

While the price of eight-year bonds has also risen - with interest rates similarly marked, at 9.78 per cent - the price of four-year and six-year bonds has fallen.

A spokeswoman for the National Treasury Management Agency told TheJournal.ie at lunchtime that there had been "no issue on the sovereign side" of Ireland's obligations.

This would mean that, if true, the rumours refer to an inability of one of Ireland's banks - with the majority of their debt obligations covered under the government's bank guarantee - to meet its own interest repayments.

The shares of the two surviving banks listed on the Dublin Stock Exchange - Bank of Ireland and Irish Life & Permanent - both remained broadly flat at lunchtime today.

Additional reporting by Jennifer Wade