Spain's two-year notes advanced for the first time in five daysafter the nation's borrowing costs fell at a bill sale, fuelingoptimism the nation can contain its debt crisis.

Italy's notes also rose as it auctioned 3.75 billion euros($4.71 billion) of zero-coupon and inflation-linked securities.Spain's Prime Minister Mariano Rajoy is hosting European UnionPresident Herman Van Rompuy for the first in a series of meetingsaimed at helping the nation fulfill its funding needs. EuropeanCentral Bank policy makers are due to decide on interest rates nextweek. Finland prepared to sell 4 billion euros of 10-year benchmarksecurities via banks.

“We've had some pretty positive auction results,” said BrianBarry, an analyst at Investec Bank Plc in London. “They illustratedemand for short-dated paper has remained relatively strong.”

The Spanish two-year yield fell eight basis points, or 0.08percentage point, to 3.66 percent at 12:56 p.m. London time. The4.75 percent note due July 2014 rose 0.145, or 1.45 euros per1,000-euro face amount, to 101.960. Italy's two-year note yielddeclined six basis points to 3.08 percent.

The Spanish Treasury sold 3.6 billion euros of bills today, morethan the 3.5 billion euros sought. The yield for three- monthsecurities fell to 0.946 percent from 2.434 percent at the lastsale on July 24. That's the least paid for three-month bills atauction since May 22. The rate on the six-month bills fell to 2.026percent from 3.691 percent last month.

Yields on Spanish and Italian bonds have plunged to three- monthlows on optimism the ECB and the single currency's 17 members willagree on a plan to use short-dated sovereign debt purchases to curbgovernments' borrowing costs and win them time to implement fiscalchanges.

Spain's Deputy Prime Minister Soraya Saenz de Santamaria saidAug. 24 that Rajoy has a full diplomatic agenda in the comingmonths as “Spain is working so that mechanisms guaranteeing theeuro's irreversibility are adopted.”

Italy sold 3 billion euros of zero-coupon 2014 debt to yield3.064 percent, down from 4.86 percent at the previous auction onJuly 26. Investors bid for 1.95 times the amount offered, comparedwith 1.78 times last month.

Italy also sold 750 million euros of 2016 and 2019inflation-linked bonds. The nation is scheduled to sell 9 billioneuros of 181-day bills tomorrow, and as much as 7.5 billion eurosof debt due in 2017 and 2022 on Aug. 30.

A German consumer-sentiment index will remain at 5.9 next month,Nuremberg-based GfK SE said today. Economists predicted a declineto 5.8, according to the median of 25 estimates in a Bloomberg Newssurvey.

Finnish Bonds

Finland's 10-year bonds will be priced to yield three basispoints more than the mid-swap rate, according to a person familiarwith the deal, who asked not to be identified because terms aren'tset. Finnish securities maturing in April 2021 yielded 1.52percent.

The Bank of America Merrill Lynch Global Broad Market Index,which monitors fixed-income assets worldwide, has returned 0.06percent this month. Less than two weeks ago the index was headedfor its worst monthly performance since 2010.

German bonds have returned 3.8 percent this year, according toindexes compiled by Bloomberg and the European Federation ofFinancial Analysts Societies. Spanish securities fell 2.3 percent,while Italy's gained 11 percent.

Volatility in Portuguese government debt was the highest in theeuro area today, followed by Italy and Spain, according to measuresof 10-year bonds, the spread between two- and 10-year securities,and credit default swaps.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.