* Investors position for more ECB stimulus in June
* Lower-rated euro zone debt yields fall to record lows
* Euro slips further against dollar
* Portuguese bonds also boosted by S&P outlook upgrade
By Francesco Canepa
LONDON, May 9 Yields on lower-rated euro zone
bonds fell to record lows and the euro 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 bolstered the positive sentiment as the country
prepares to exit its international bailout this month.
Investors are betting the ECB will cut interest rates next
month, opening the way for further possible steps, such as a
bond-buying programme. ECB 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 all hit
record lows: 2.9 percent, 2.87 percent
and 2.65 percent respectively. The euro fell
another 0.4 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
Portugal's 10-year bonds yielded as little as
3.44 percent on Friday, their lowest since early 2006, after S&P
lifted the country's credit outlook to stable from negative.
Peak yields reached 17 percent at the height of the euro zone
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
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 Union's role
in defeating fascism on Friday, the anniversary of the World War
Two victory over Nazi Germany - a reminder that he has called
leaders in Ukraine 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 edged 0.2 percent higher at $1,292.16 an
ounce but still on track for its second straight weekly decline.
(Additional reporting by Emelia Sithole-Matarise and Patrick
Graham; Editing by Larry King)