World stocks and US bond markets yesterday shrugged off a government shutdown in Washington, although the dollar pulled back and wallowed near three-year lows as the euro resumed its strong start to the year.

US Treasury yields, which have tended to fall during previous government shutdowns, rose as investors saw limited economic fallout from the political standoff and focused instead on a global economy motoring ahead and US inflation pressures.

After a mixed start, European shares turned positive in mid-morning trade as markets focused on a flurry of mergers and acquisitions and upcoming corporate earnings reports. Progress towards an end to political deadlock in Germany helped the mood.

The pan-European STOXX 600 index was up 0.1 per cent. Germany’s DAX was flat, France’s CAC-40 up 0.1 per cent and the UK’s FTSE was unchanged.

US stock futures were down marginally after Wall Street set record highs on Friday, but investors were taking the view that the dispute between President Donald Trump and Democrats could be resolved without a prolonged shutdown.

A plan put forward by a group of senators to extend government funding to February 8 and work on resolving an immigration dispute has also helped ease concerns about a more serious deadlock.

In a sign that the market was undeterred by the dispute in Washington, the benchmark US 10-year Treasury yield yesterday reached close to its highest level in more than three years, an extension of the sell-off in US bonds since September.

The dollar remained stuck near three-year lows, continuing its weak start to the year.

The single currency gained 0.2 per cent and was trading at $1.22435, although volatility in the euro-dollar exchange rate was more muted than would have been expected, also given flare-ups during previous US government shutdowns.

In European bond markets, Spain’s borrowing costs dropped to a six-week low and the gap over its German peers fell to its tightest in almost three years after Fitch Ratings gave Spain its first “A” rating since the euro zone debt crisis.

Greece’s short-dated yields also fell after S&P Global Ratings upgraded the country’s credit ratings for the first time in two years.

Most other eurozone bond yields were little changed.

Oil prices climbed higher after comments from Saudi Arabia that cooperation between oil producers who have cut production to boost prices would continue beyond 2018.

After rising earlier, oil futures were flat. Brent crude futures stood at $68.58 a barrel, not far from the $70.37 level hit on January 15.

That was oil’s highest level since December 2014.