Greek, Irish and Portuguese bonds fell as a German official said Greece will probably have to restructure its debt as its financing costs rise. German ten-year bunds fell for a second day as equities rose, sapping demand for the safest assets. Greece’s two-year yield rose to a record after Lars Feld, a member of German Chancellor Angela Merkel’s council of economic advisers, said Greek restructuring is probable. Spanish bonds rose after demand increased at an auction of 10-year debt. “Talk of Greek restructuring dominates sentiment and is pushing peripherals lower,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “The bond market continues to push spreads wider, suggesting the reality of the restructuring risk.” Greek two-year yields rose 30 basis points to 21.02 percent at 11:07 a.m. In London. The yield reached 22.12 percent earlier, the highest since at least 1998, when Bloomberg began collecting the data. The 4.6 percent security due 2013 fell 0.35, or 3.5 euros per 1,000-euro ($1,449) face amount, to 74.55. The Greek 10-year yield rose 13 basis points to 14.61 percent, bringing its spread over German debt to almost 11.3 percentage points. The yield yesterday reached 14.66 percent, a euro-era record. “I fear that Greece can’t get out of this situation without some kind of restructuring,” Feld told Deutschlandfunk radio today. While “that doesn’t have to mean an actual default,” it could include “the buyback of bonds through a European institution,” he said, without elaborating. The 10-year German bund yield was three basis points higher at 3.31 percent. It reached 3.225 percent yesterday, the lowest since March 24. Yields on two-year notes were four basis points higher, at 1.84 percent. Iberian Auctions Portugal’s 10-year yield rose seven basis points to 9.16 percent. It reached a euro-era high of 9.28 percent on April 18. Ireland’s ten-year yield rose 10 basis points to 9.9 percent. The nation’s borrowing costs increased at an auction of 320 million euros of six-month bills. The securities due in November were issued at an average yield of 5.529 percent, compared with 5.117 percent the last time the securities were sold on April 6. Investors bid for 3.66 times the amount of securities on offer, compared with 2.3 percent previously. The debt agency also sold 680 million euros of three-month bills due in July at an average yield of 4.046 percent, attracting bids for twice the amount offered. Spain sold 3.4 billion euros of bonds maturing in 2021 and 2024, with the bid-to-cover ratio for the ten-year debt increasing to 2.1 times the amount sold from 1.81 last month. The Spanish 10-year yield fell six basis points to 5.45 percent. “It’s a fairly good result,” said Peter Chatwell, a fixed- income strategist at Credit Agricole SA in London. “There’s a solid bid-to-cover ratio.” German government bonds have handed investors a loss of 1.9 percent this year through yesterday, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while Treasuries have returned 0.6 percent. Spain’s debt has gained 1.3 percent and Portugal’s has lost 12.4 percent, the indexes show. To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net Keith Jenkins in London at kjenkins3@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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