Italian 10-year bonds fell, pushing yields toward the highest this month, after the nation raised less than its maximum target at an auction of debt due between 2014 and 2022.

Portuguese and Spanish securities also declined and the euro weakened to a 15-month low against the dollar after Italy agreed to pay a yield of 6.98 percent on securities maturing in 2022, close to the 7 percent level that prompted euro-area peers to seek bailouts. German two-year yields fell to match a record low and bunds climbed for a third day as a government report showed inflation slowed in December.

“Yield levels around 7 percent are absolutely not sustainable,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “They could not sell the entire size they planned. It's not positive news for the stressed sovereign-debt markets in the euro zone.”