German bonds rose for a third day after Standard & Poor’s cut Italy’s credit rating and Greek Prime Minister George Papandreou was said to be considering a referendum on whether to exit the euro. Gains in the two-year notes, perceived to be Europe’s safest debt securities, left the yield below 0.5 percent for a second day. S&P lowered Italy’s rating to A from A+ with a negative outlook, saying slower economic growth and a “fragile” government may derail the nation’s ability to reduce the euro-region’s second-largest debt burden. Spain is scheduled to sell bills today. The yield on the 10-year German bund fell four basis points to 1.76 percent at 7:34 a.m. in London, after dropping to a record 1.68 percent on Sept. 13. The 2.25 percent security due September 2021 rose 0.385, or 3.85 euros per 1,000-euro ($1,361) face amount, to 104.445. Two-year yields declined one basis point to 0.45 percent. Papandreou hopes to use a vote on the euro to give his government a mandate for austerity measures asked for by international lenders, the Greek newspaper Kathimerini said on its website. A bill to set up a referendum on the euro may be submitted to parliament and discussed in the coming days, Kathimerini said. German government bonds have returned 2.7 percent in September, extending this year’s gain to 8.1 percent, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries gained 1.4 percent this month while Greek bonds have tumbled 22 percent. -- With assistance from Keith Jenkins in London and Jeffrey Donovan in Rome. Editors: Nicholas Reynolds, Mark McCord To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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