Spanish yields dipped below 3 percent for the first time in nine years on Friday as lower-rated euro zone bonds shrugged off rising tensions between Ukraine and pro-Russian separatists to continue their ECB-driven rally.
Yields on German Bunds, seen as one of the safest assets in periods of political and economic uncertainty, dipped to 11 month lows after Ukrainian troops launched a raid to try to retake a town from pro-Russian separatists.
Unlike at the height of the euro zone’s debt crisis in 2011 and 2012, geopolitical tensions failed to rattle peripheral markets this year. Spanish, Italian and Portuguese bonds continued to outperform Bunds on Friday.
The possibility that the European Central Bank could eventually try to tackle low inflation by buying government debt to print money has given strong support to peripheral bond markets. At 0.7 percent, inflation was below forecasts in April and stayed well below the ECB’s close-to-2-percent target.