Italian, Spanish and Greek bonds slumped while German bunds rallied amid concern Europe’s debt crisis is worsening. The 10-year Italian yield soared past 6 percent, the highest level since 1997, while two-year Greek and 10-year Spanish yields surged to euro-era records. Finance ministers said late yesterday that they may revive bond buybacks to ease Greece’s debt woes. U.S. Treasuries yielded near the least this year, while 10-year German yields sank to the lowest in more than seven months on demand for safety. The euro fell to a four- month low and stocks fell from Asia to Europe. “Although Spanish and Italian spreads are widening strongly, there is still a lot further that the risk-aversion trade can go whilst policy makers fail to stem the crisis,” said Peter Chatwell, a strategist at Credit Agricole Corporate & Investment Bank in London. “The flight into short-term German assets is very strong.” Yields on 10-year Italian bonds increased for a seventh day, climbing as high as 6.02 percent. They were 21 basis points higher at 5.89 percent as of 9:28 a.m. in London, widening the spread over German bunds to 318 basis points, a euro-era record. Spanish 10-year yields added 17 basis points to 6.20 percent, expanding the spread over German debt to as much as 372 basis points. The yield reached a record 6.31 percent. Greek 10-year bond yields increased 10 basis points to 17.12 percent. Bund Yields Ten-year bund yields fell 13 basis points to 2.54 percent, the least since Nov. 15. The 3.25 percent security, due July 2021 gained 1.16, or 11.6 euros per 1,000-euro ($1,392) face amount to 106.15. Two-year German note yields declined 11 basis points to 1.15 percent, after reaching 1.14 percent, the least since Jan. 17. Investor impatience with the EU’s response to the fiscal crisis punished the bloc’s most debt-ridden states yesterday, prompting a surge in borrowing costs across so-called peripheral states. The 17 euro-area finance ministers issued a six- paragraph statement yesterday, following a nine-hour meeting in Brussels, pledging to flesh out details of a new strategy to end the 21-month-old crisis “shortly,” without setting a timeline. Ministers from the 27 nations that make up the European Union are due to meet in Brussels today. ‘Exploring Possibilities’ “There are a variety of ways of enhancing the flexibility,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters late yesterday. Buybacks are “one of those. I would at this stage not exclude any option. But instead we are exploring these possibilities.” The new strategy may require reinforcing the European Financial Stability Facility, the 440 billion-euro bailout fund that was beefed up only last month. Talks with bondholders over a rollover plan for Greek debt were snagged after credit-rating companies said it risked putting Greece in default. The International Monetary Fund isn’t yet discussing details of a second joint bailout package for Greece with the European Union, said Christine Lagarde, the fund’s new managing director, told reporters in Washington yesterday. Concerns that Europe’s debt crisis is worsening comes as Italy plans to sell 6.75 billion euros in 367-day bills today. Greece is also scheduled to auction 1.25 billion euros of 182- day bills. Core Spreads “The battering the Italian credit has taken recently will probably mean that the bills come at a significant spread,” said Credit Agricole’s Chatwell. So-called core euro-region bonds lagged German securities in the flight to safety, with Austrian, French, Dutch, Belgian and Finnish 10-year yields rising relative to bunds. The Austrian spread over German 10-year bonds, Europe’s benchmark government securities, widened five basis points to 71 basis points, the most since June 2010. The French-German gap increased six basis points to 75 basis points, and the Dutch- bund difference rose six basis points to 51 basis points. The Belgian-German spread widened 16 basis points to 178 basis points, or 1.78 percentage points, while the Finnish-bund gap rose three basis points to 46 basis points. To contact the reporters on this story: Garth Theunissen in at gtheunissen@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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