Bunds Fall as Cyprus Studies Bailout Options; Spanish Bonds Rise

German government bonds fell, with 10-year yields climbing the most in three weeks, as speculation Cyprus will be able to renegotiate an international bailout damped demand for Europe’s safest fixed-income assets.

Benchmark bund yields climbed from near an 11-week low even as Germany’s borrowing costs fell as it sold 3.36 billion euros ($4.35 billion) of the securities at an auction. Spanish and Italian bonds advanced on speculation the debt crisis in Cyprus will be resolved, increasing investor appetite for the debt of so-called peripheral nations. The European Central Bank reaffirmed its commitment to offer funding to Cyprus yesterday, after the country’s lawmakers rejected a levy on bank deposits.