Spanish and Italian government bonds slumped on Friday as the growing risk of a Greek default rose prompted a sell-off in the Eurozone’s higher-yielding debt. The yield on Spanish 10-year bond rose 18 basis points (bps) to 2.31 percent, the biggest jump since May 5, while similar-maturity Italian yield increased 15 bps to 2.30 percent, after sliding 15 bps over the previous two days. Yields on Greek 2-year and 10-year securities rose 27 bps to 11.50 percent and 87 bps to 25.53 percent, respectively.
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German government bonds extended a sell-off that pushed 10-year yields up last week by 36 basis points (bps) to the highest since November amid signs of the country’s improving growth outlook. The yield on German 10-year bunds gained 3 bps to 0.87 percent after hitting as high as 0.9 percent earlier trading. The rise in German 10-year yields since mid-April, from near zero to just below 1 percent last week, has been a central driver of the European bond markets.
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Oil prices rose on Friday after U.S. crude inventories dropped for a fourth consecutive week. Wildfires in Canada, which knocked out 10 percent of its oil sands output, also supported prices. Oil saw sharp falls earlier this week amid a strengthening dollar. Brent crude, the global benchmark, was up $1.87 cents (or nearly 3 percent) to $64.45 a barrel, while U.S. crude, also known as West Texas Intermediate (WTI), rose $1.60 (or 2.8 percent) to $59.28.
European financial markets rallied on Wednesday after reports that Greece and its creditors, including the International Monetary Fund, is nearing a deal that will proved debt relief to the struggling nation. Europe’s benchmark stock index closed 1.3 percent up with Greek shares gaining 3.6 percent. The euro strengthened 0.2 percent against the dollar to $1.09, up from its session low of $1.0815 earlier. The yield on the benchmark 10-year Greek government bond fell about 64 basis points to 11.3 percent.