Spain, Italy outperform, rally fragile

LONDON: Yields on Spanish and Italian government bonds eased on Tuesday, outperforming German Bunds as investors edged back into higher-yielding euro zone debt.

Traders said some investors were using a recent rise in yields to buy back into the market, but cautioned that the underlying view was that both sovereigns could face fresh pressure over low growth in the region and fiscal slippage.

The 10-year Spanish yield was 3 basis points lower on the day at 5.03 percent - a spread of 326 bps over German Bunds. The Italian equivalent yield was 4 bps lower at 4.873 percent.

Greek bonds also performed slightly better on the day, with yields on its newly-issued debt mostly slightly lower across the 20 new lines.

Portugal, however saw its yields rise as the country continued to contend with speculation that it may also have to follow Greece in restructuring its debt.