German bunds rallied for a third day as stocks slumped in Asia on concern Europe’s debt crisis is worsening and after U.S. lawmakers failed to agree on measures to reduce the fiscal deficit, stoking demand for safer assets. The gains pushed 10-year bund yields down to a more than seven-month low as European finance ministers tried to calm concern that the region’s turmoil is spreading to Italy. Asian stocks headed for their biggest two-day loss since March 15 after the officials said late yesterday they were considering reviving a bond buyback plan to ease Greece’s debt woes. Italy plans to sell 6.75 billion euros in 367-day bills today, while Greece will auction 1.25 billion euros of 182-day bills. “We have not seen a ‘circuit breaker’ yet, with bunds continuing marching higher,” said David Schnautz, a fixed- income strategist at Commerzbank AG in London. “Today’s Italian bills auction will be watched closely.” Ten-year bund yields fell five basis points to 2.62 percent as of 7:38 a.m. in London, the least since the end of November. The 3.25 percent security, due July 2021 gained 0.425 or 4.25 euros per 1,000-euro ($1,392) face amount to 105.41. Two-year German note yields declined six basis points to 1.2 percent. Italian and Spanish bonds tumbled and German bunds surged yesterday as contagion from Greece’s debt crisis threatened to spread through the 17-member euro area. Ministers from the 27 nations that make up the European Union are due to meet in Brussels today. To contact the reporters on this story: Garth Theunissen in at gtheunissen@bloomberg.net or; Emma Charlton in London at echarlton1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

Source