LONDON: Yields on the euro zone's lower-rated bonds mostly fell on Monday as political uncertainty in Italy eased after lawmakers elected a new president.
Greek yields rose, however, amid signs that the new government in Athens and its EU partners had yet to resolve their differences over the terms under which the country's debt obligations might be renegotiated.
Italy's parliament chose Sergio Mattarella, a constitutional court judge and veteran centre-left politician, as president on Saturday.
The vote showed Prime Minister Matteo Renzi in control of his party and allies in the ruling majority as he seeks to pass reforms to lift Italy out of six years of on-off recession.
Italian 10-year bond yields were 4 basis points lower on the day at 1.57 percent. Equivalent Spanish and Portuguese were down 3 bps at 1.41 percent and 2.39 percent, respectively.
"There is relief that Italy managed to find a new president, especially one that's favoured by Matteo Renzi," said Felix Herrmann, a market strategist at DZ Bank.
Herrmann also saw signs "we might be moving towards some kind of an agreement with regards to Greece," where the leftist Syriza party is looking to re-negotiate a bailout deal with the European Union after winning elections a week ago.
After meeting Greece's new finance minister Yanis Varoufakis, his French counterpart Michel Sapin said Athens could not expect a straight debt write-off, but he left the door open to other options that include giving Athens more time for repayment.
Varoufakis offered to produce proposals within a month for a revised debt agreement with sceptical EU partners, but he also said Greece needed to go "cold turkey" on debt.
Uncertainty remained high, with Europe's dominant economy Germany expected to take a hard stance in any negotiations.
Greek 10-year yields were 12 bps higher at 11.51 percent. Three-year yields were 45 bps up at 19.27 percent, while five-year yields rose 17 bps to 15.23 percent.
"They are looking to divide the euro area," said KBC strategist Piet Lammens. "The Germans, of course, are very reticent."
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