By Tommy Stubbington Euro-zone bond markets continued to bask in post-Greek debt deal euphoria Thursday, extending the recent rally in Spanish and Italian debt, with Spain's 10-year yield falling to its lowest level since March. As yields on ultra-safe Bunds remain at very low levels, investors took advantage of a renewed sense of stability in markets to pile into a range of bond markets in a search for higher returns. While boosting shakier debt from Italy and Spain, the rising tide also lifted bonds issued by a second tier of safer countries, helping Belgium's 10-year bond yield to a euro-era low and pulling French yields to within a whisker of a record trough. European policymakers Tuesday agreed a package of measures to alleviate Greece's debt burden and release its next tranche of financial aid, removing a key risk that had been looming over markets and triggering the current rally. "With year-end approaching, the desperation to pocket some yield seems all the more intense," said Ciaran O'Hagan, a fixed income strategist at French bank Societe Generale. Spanish 10-year yields fell by 0.11 percentage point to 5.20%, an eight-month low, according to Tradeweb. The equivalent Italian 10-year yield, already at its lowest since June 2011, sank 0.08 percentage point to 4.50%. Belgian 10-year yields fell slightly to 2.18%, the lowest since the euro began, and French bonds saw yields drop below levels seen prior to its credit rating downgrade by Moody's last week. "The most significant impact of the Greek deal was a big reduction in tail risk. That's why investors are happy to go looking for yield and the convergence trades can continue to run," said Peter Chatwell, a fixed income strategist at Credit Agricole CIB credit. Meanwhile, investors sold German Bunds amid a renewed sense of optimism that U.S. politicians can reach a deal to avoid a fiscal cliff, further spurring the rally in other European markets. Write to Tommy Stubbington at tommy.stubbington@dowjones.com

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