Italy's government bond yields fell sharply on Friday, pulling back from recent seven-week highs, on bets that S&P Global will refrain from downgrading the country at a ratings review. S&P Global will review Italy's sovereign credit rating after the market closes on Friday. It currently rates Italy BBB with a negative outlook. A downgrade to BBB- would put the rating just one level above junk. Italy is rated Baa3 by Moody's and BBB by Fitch.
In late trade, Italy's 10-year bond yield was down nine basis points on the day at 2.59 percent, down from seven-week highs hit on Tuesday at 2.70 percent and set for its biggest daily fall in seven weeks. That pulled the Italian/German 10-year bond yield gap in from two-month highs around 271 bps. Italy was not the only southern European bond market in the spotlight.
Spanish voters go to the polls this weekend in one of the most contentious elections in decades, with at least five parties in with a chance of being in the next government. The far-right party Vox is likely to win seats for the first time. Yet Spanish 10-year yields also dropped, by about six bps to 1.03 percent.
Elsewhere, euro zone bond markets showed little immediate reaction to US GDP data, with Germany's 10-year Bund yield remaining below zero percent as worry persists over the region's economy. US Treasury yields fell following Friday's first-quarter growth report as weak inflation data tempered the strong headline figure.
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