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 program. 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%, 2.87% and 2.65% respectively. The euro fell another 0.4% from Thursday's U.S. close.
Portugal's 10-year bonds yielded as little as 3.44% on Friday, their lowest since early 2006, after S&P lifted the country's credit outlook to stable from negative. Peak yields reached 17% at the height of the euro-zone debt crisis.
Some market participants are becoming cautious after the rapid fall in yields.
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% to $108.61 U.S. 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.
