Euro-Zone Bonds From Trouble Spots Soar, Euro Holds Firm

        Government bonds from the euro area's one-time trouble spots jumped to record highs Friday while the euro held firm, underscoring the tough job that the European Central Bank faces in seeking to stimulate the economy but pull down the euro.
        The ECB has said repeatedly that generating euro weakness isn't one of its goals. But it acknowledges frequently that the strength of the currency holds down troublingly low inflation.
        On Thursday, the central bank surpassed most investors' expectations as it cut all its main interest rates--including its deposit rate which turned negative for the first time--and outlined a number of further measures, including a fresh series of cheap loans to banks.
        In the aftermath, stocks and bonds have rallied. Spanish and Italian 10-year bond yields sank to record lows of 2.74% and 2.84% respectively. Yields on safe-harbor German Bunds also fell. Yields fall as prices rise.
        "The ECB is committed to a program of "credit easing" and in our view this should be supportive of risk assets, including periphery spreads," said David Riley, head of credit strategy at BlueBay Asset Management.
        But the euro hasn't extended the decline it saw over the past month, trading Thursday at around $1.3650 against the dollar.
        "The euro has been very highly correlated with peripheral asset markets, more so than core markets. If the central bank provides measures which will support these asset markets, then there is going to be a euro feedback," said Ian Stannard, currencies analyst at Morgan Stanley.
        "However, there will come a point when yields on the periphery become so low that the attractiveness of that trade will fade."
        More enduring weakness in the common currency may have to wait until other major central banks start to seriously contemplate raising interest rates. Investors will be closely watching Friday's U.S. jobs report for any sign of strength in the economy that could inform the Federal Reserve's thinking. Economists expect the report to show that the U.S. economy added 215,000 jobs in May.
        Stocks made small gains in early trade, having closed at fresh six-and-a-half year highs on Thursday. The Stoxx Europe 600 was 0.3% higher in early trade.
        While further ECB stimulus is good news for equity markets, some investors are beginning to worry about weak corporate profits given the lofty valuations in markets.
        "The ECB package should be enough to support equity markets for a while but the economic momentum needs to improve to reassure investors about European earnings prospects," said Jeanne Asseraf-Bitton, head of cross-asset research at Lyxor Asset Management in Paris, which manages about $110 billion of assets.
        Write to Tommy Stubbington at tommy.stubbington@wsj.com
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        (END) Dow Jones Newswires

        June 06, 2014 04:40 ET (08:40 GMT)