LONDON: A split in euro zone bond markets, created by worries over Britain's upcoming referendum on its EU membership, narrowed for a second day on Monday after polls showed the "Remain" camp recovering some momentum.
Yields on German bonds -- the EU's top-rated debt, considered a refuge in time of stress -- rose to near a two-week high as investors returned to southern European bonds and stocks that carry more risk but offer greater returns.
That trend started late last week after the murder of a British lawmaker seemed to reduce the chances Britons would vote on June 23 to quit the EU.
It continued on Monday after three weekend polls showed the "Remain" camp had regained its lead over "leave".
"We have had a pretty strong turnaround in risk appetite as the perceived chance of a `leave' victory has receded," said Mizuho rates strategist Antoine Bouvet, adding that investors are closely following changes in bookmakers' odds.
The implied probability of a British vote to remain in the EU rose to around 75 percent on Monday, according to Betfair betting odds.
It had been as low as 60 percent last Thursday .
German 10-year bond yields rose 4.5 basis points to 0.064 percent, the highest since June 9 and up 10 bps from a record low of minus 0.037 percent before Thursday's fatal attack on Jo Cox, an ardent supporter of EU membership.
Yields on 30-year German bonds climbed 7 bps to 0.65 percent in their biggest one-day rise in two months.
The only opinion poll fully carried out since Cox's death showed support for "Remain" at 45 percent, ahead of "Leave" on 42 percent - a reversal of the three-point lead the pollster, Survation, showed for "Leave" in a poll conducted on Wednesday.
Two other polls published on Saturday showed the "Remain" campaign in the lead. Another showed the two camps running neck and neck.
"It might be possible that the events influenced the polls, but most experts commented that it is more likely that an expected and well-documented 'pull to the status-quo' is responsible for the latest swing," said Peter Schaffrik, RBC's chief European macro strategist.
Lower-rated bonds in Europe's southern periphery - which are seen as the most vulnerable to the economic and political headwinds that could arise from Brexit - recovered while stocks also found a firmer footing.
Spanish and Italian 10-year bond yields fell 8 bps to 1.48 percent and 1.37 percent, respectively.
The Portuguese equivalents shed 16 bps to hit 3.18 percent.
The British pound was set for its biggest one-day gain in more than seven years, climbing more than 2 percent against the US dollar.
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