LONDON (Reuters)
— Lower-rated euro zone
bond yields fell to fresh record lows and the common currency slid
further on Friday as investors positioned for more monetary stimulus
from the European Central Bank.
An upgrade by Standard & Poor's of its credit rating outlook for
Portugal added to the positive sentiment and gave a further boost to
Lisbon as the country prepares to exit its international bailout
this month.
Investors are betting the ECB will cut interest rates next month,
paving the way for potential further steps such as a bond-buying
program, after its president Mario Draghi said on Thursday the bank
was ready to act in June if updated inflation forecasts merit it.
Yields on Italian, Spanish and Irish 10-year bonds hit record lows
of 2.9 percent, 2.87 percent and 2.65 percent respectively while the
euro fell another 0.2 percent from Thursday's U.S. close.
"With the words from Draghi yesterday there is a good chance that
peripheral yields continue to move lower in the next month or two,"
said Stewart Richardson, a partner at macro hedge fund RMG Wealth
Management.
"There has been quite an about-turn in thinking in the last 24
hours. We think the chances are much higher now that we get some
sort of action from the ECB and this is primarily done to bring down
the euro."
Richardson said the yield on Italy's 10-year bond could fall to 2.75
percent. He has short positions on the euro against currencies such
as the Japanese yen and the Norwegian krone.
Portugal's 10-year bonds yielded as little as 3.44 percent, the
lowest level since early 2006, on Friday after S&P lifted the
country's credit outlook to stable from negative, far from peaks
above 17 percent hit at the height of the euro zone debt crisis.
Some market participants are becoming cautious after the rapid fall
in yields.
"In the European periphery we remain invested in Portuguese and
Slovenian government bonds," said Scott Thiel, head of European
Global Bonds at Blackrock.
"However, given their significant spread compression to German Bund
yields in recent weeks and in light of excessive market expectations
for imminent quantitative easing in the euro zone, we have reduced
these positions."
SHARES PAUSE AFTER RALLY
Global shares paused for a breather, with the MSCI All-Country World
index down 0.2 percent after rallying to its highest level since
December 2007 on Thursday.
Weak corporate updates from blue chips such as Spanish-listed
telecoms operator Telefonica capped European shares, sending
the pan-European FTSEurofirst 300 index down 0.4 percent.
U.S. futures pointed to a lower start on Wall Street, with S&P
June mini-futures down 0.2 percent.
Markets were also keeping a wary eye on the Ukraine crisis.
Russian President Vladimir praised the Soviet role in defeating
fascism on Friday, the anniversary of the World War Two victory over
Nazi Germany, in an appeal marked by a poignant ring because Moscow
has portrayed leaders in Ukraine as neo-fascists.
Brent crude futures were up about 0.5 percent to $108.61 a barrel,
supported by tension in Ukraine and limited supply from Libya, where
a recent deal to reopen oil export terminals seemed unlikely to go
ahead.
London nickel prices surged beyond $20,000 per tonne for the first
time in more than two years on Friday, rocketing almost 6 percent at
one point as a flurry of supply concerns fuelled heavy buying of the
stainless steel material.
Spot gold was flat at $1,289.50 an ounce but still on track for its
second straight weekly decline.
(Additional reporting by Emelia Sithole-Matarise and Patrick Graham;
Editing by Toby Chopra)
