Italian, Spanish Bonds Fall as Greek Leaders Debate Debt Crisis

Italian and Spanish bonds fell as Greek Prime Minister Lucas Papademos prepared to meet the nation’s political leaders today to discuss additional austerity needed to get a second European Union-led bailout.

Italy’s two-year yields climbed from near an eight-month low as European stocks slid, sapping demand for the region’s assets. Leaders of the three political parties supporting Papademos’s government will meet the premier today in Athens to debate the budget cuts required by the nation’s creditors. Germany’s bonds declined, snapping a gain from yesterday. The Netherlands sold 6 billion euros ($7.9 billion) of 10-year debt.

“The main driver behind the cautious sentiment was again the lack of progress in Greece concerning both the private sector involvement negotiation and the second bailout package,” Sercan Eraslan, a fixed-income strategist at WestLB AG in Dusseldorf, wrote in an e-mailed note.

The Italian two-year yield rose six basis points, or 0.06 percentage point, to 3.03 percent at 2:23 p.m. London time after falling to 2.90 percent on Feb. 3, the lowest since June 8. The 2.25 percent note due November 2013 dropped 0.95, or 95 euro cents per 1,000-euro ($1,318) face amount, to 98.74. Spain’s two-year yield climbed five basis points to 2.62 percent.

Greek politicians are seeking to obtain a 130 billion-euro rescue from the European Union and a deal with private creditors to prevent an economic collapse as early as next month. While they already agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors.

‘Sluggish Pace’

“The Greek negotiations are continuing at a sluggish pace, with still no agreement in sight,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “This is causing a bit of nervousness in risk markets.”

The extra yield investors demand to hold Italy’s 10-year bonds instead of German bunds widened one basis point to 3.75 percentage points. The spread between Spanish and German 10-year yields increased four basis points to 3.17 percentage points.

Germany’s 10-year bond yield rose four basis points to 1.93 percent, after earlier falling to 1.86 percent.

The Stoxx Europe 600 Index of shares dropped for a second day, losing 0.6 percent.

Greece sold 812.5 million euros of 26-week bills today at a yield of 4.86 percent, according to the Public Debt Management Agency in Athens. That compares with a yield of 4.90 percent at the previous auction on Jan. 10. Investors bid for 2.72 times the securities sold, from 2.80 times last month.

The Netherlands auctioned 2.25 percent bonds due in July 2022 at an average yield of 2.359 percent, the State Treasury Agency said. The nation’s 10-year yield increased five basis points to 2.26 percent.

Germany’s bonds have gained 12 percent in the past year as the European debt crisis worsened, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Spanish debt returned 6.8 percent, and Greek securities tumbled 65 percent, the indexes show.

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