German bonds rose for a second day, outperforming their European peers, as speculation Greece is struggling to win a new bailout from international lenders boosted demand for the region’s safest securities. Two-year yields dropped to the lowest level in a week after Reuters reported that a second aid package for Greece may be delayed until after elections in April, citing European Union sources. Spanish and Italian bonds fell on concern the turmoil in Greece will spread to larger economies. Portuguese five-year notes gained after the nation’s borrowing costs declined at bill sales today. Bunds are rising as a “reaction to delays over the second bailout� for Greece, said Brian Barry, an analyst at Investec Bank Plc in London. “The prospect of a disorderly default is becoming more real, with the possible implication that Greece may be the first member state to leave the euro zone, which is by definition venturing into unknown territory.� The German 10-year yield fell four basis points, or 0.04 percentage point, to 1.86 percent at 3.03 p.m. London time. The 2 percent bond due in January 2022 gained 0.37, or 3.70 euros per 1,000-euro ($1,308) face amount, to 101.24. The two-year yield dropped two basis points to 0.23 percent after falling to 0.21 percent, the lowest since Feb. 7. Europe’s wealthier nations are “playing with fire� by considering the idea of expelling Greece from the euro area, the country’s Finance Minister Evangelos Venizelos told reporters today in Athens. He leveled the accusation after a decision slated for today on aid totaling 130 billion euros was postponed until Feb. 20 at the earliest. Spain, Italy Spanish 10-year yields climbed nine basis points to 5.38 percent, and similar-maturity Italian yields increased nine basis points to 5.66 percent. Portugal’s government debt agency sold bills maturing in 91-, 182-days and 371-days. The 12-month debt was the longest maturity offered since the country requested a bailout from the European Union and the International Monetary Fund in April last year. The securities were issued at an average yield of 4.943 percent, compared with 5.902 percent when it last auctioned 12- month debt on April 6. Portugal’s five-year yields declined 13 basis points to 14.83 percent. Ten-year bond yields dropped two basis points to 12 percent. German bunds have returned 12 percent over the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds tumbled 64 percent and Portuguese securities slid 16 percent. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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