German Bonds Decline as Talks Intensify Over Greece’s Salvation

German bonds fell as European leaders and the head of the International Monetary Fund agreed to step up the intensity of talks over Greece’s financial fate.

Italian securities halted a decline, as investors showed more appetite toward Europe’s higher-yielding debt. Officials including German Chancellor Angela Merkel, IMF chief Christine Lagarde and European Central Bank President Mario Draghi, met in Berlin Monday night aiming to hammer out an offer for Greece to consider in coming days, according to two people familiar with the plan. Spanish bonds fell as the nation prepared to sell 10-year debt via banks. ECB officials gather in Frankfurt on Wednesday to set monetary policy.

“There’s some hope, with the Greek talks being taken to higher level, that something might come from that,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “But in respect of some of the volatility we’ve seen lately, these moves aren’t a sign of a big rally.”

The yield on German 10-year bonds rose four basis points, or 0.04 percentage point, to 0.58 percent as of 8:46 a.m. London time. The 0.5 percent security due in February 2025 fell 0.36, or 3.60 euros per 1,000-euro ($1,095) face amount, to 99.25.

Italian Bonds

The yield on Italian 10-year bonds was little changed at 1.98 percent, after climbing 13 basis points on Monday, the most since May 5. The yield on similar-maturity Spanish debt rose two basis points to 1.98 percent.

Greek two-year yields slipped 82 basis points to 24.08 percent.

Economists in a Bloomberg survey forecast that the annualized inflation rate rose to 0.2 percent in May from zero in April. The report, due on Tuesday, would follow improving data from Spain and Italy and mark the first price increase in six months.

“Greece is pretty much contained,” Patrick Armstrong, chief investment officer at Plurimi Investment Managers in London, said in an interview on Bloomberg Television’s “Countdown” with Anna Edwards and Mark Barton. “Contagion risk is nothing like it was years ago. Several years ago you had Italy and Spain at 6.5 to 7 percent yields. If Greece would have defaulted then, that would have probably been the demise of the euro zone and if Greece defaults now I think it’s pretty much contained.”

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