Italian government bonds rose after investor demand for the nation's securities increased at a sale of three-year notes.

The advance pushed 10-year yields lower for the first time in four days. Italy's Treasury sold €3.75 billion of its benchmark three-year securities, the maximum sales target, to yield 2.86 per cent.

Investors bid for 1.67 times the amount sold, up from 1.49 times at the last auction of the debt on September 13th. Spain's two-year notes fell after Standard and Poor's downgraded the nation two levels to BBB- from BBB+ yesterday, and left a negative outlook on its long-term rating. German 10-year yields dropped to the lowest in a week.

"The auctions were pretty good, they issued at the top end of the range and that had a small positive effect on the market," said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. "The market is still waiting for the next step, which is for Spain to ask for a bailout."

Italy also sold a total of €2.25 billion of bonds due in 2016, 2018 and 2025 to yield respectively 3.42 per cent, 4.06 per cent and 5.24 per cent. Italy is due to pay €18 billion in redemptions on October 15th and auctioned €11 billion of bills yesterday.

Spain's two-year note yield rose three basis points to 3.29 per cent. Germany's 10-year rate fell two basis points to 1.48 per cent and reached 1.44 per cent, the lowest since October 4th.

German bonds returned 3.1 per cent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Bloomberg