Irish nine-year bonds fell below 6 per cent this morning, the first time this has happened in 22 months.

The nine-year yields dropped seven basis points to 5.96 per cent, the lowest since October 19th, 2010, while Portugal's 10-year rate declined to a 15-month low amid speculation European leaders will make progress on supporting Greece at meetings this week.

Volatility on Irish Government debt was the highest in euro-region markets today, followed by Finland.

Germany's 10-year bund fell for a second day while Spain's two-year notes rose a sixth day after borrowing costs fell at a sale of bills.

Spain's 10-year bond yield fell eight basis points to 6.20 per cent. It slid to 6.16 per cent yesterday, the lowest since July 2nd, following a report in Germany's Spiegel magazine that the ECB may impose a ceiling on the borrowing costs of indebted euro-zone economies. The two-year note yield dropped 13 basis points to 3.46 per cent.

The treasury in Madrid sold €4.51 billion worth of bonds, in line with the €4.5 billion sought. The yield for 12-month bills fell to 3.07 per cent from 3.918 per cent at the last sale on July 17th. That on 18-month bills fell to 3.335 percent from 4.242 percent last month.

The yield on Spain's benchmark 10-year bond yield was at 6.25 basis points this morning in Madrid, down from a euro-era record of 7.75 per cent on July 25th, as investors anticipated the ECB will buy sovereign debt on the secondary market.

The gap between two-and 10-year yields has swollen since ECB president Mario Draghi unveiled a plan to buy short-dated debt on August 2nd.

Demand was 1.91 times the amount sold for the 12-month securities, compared with 2.23 times in July. The bid-to-cover ratio for the 18-month bills was 3.98, up from 3.66.

Italy's two-year note yield declined as much as 15 basis points to 2.89 per cent, the lowest since May 9th.

Meanwhile, the euro rose to a six-week high against the yen amid optimism the European debt crisis is being contained.

The 17-nation currency appreciated for a second day against the dollar as Spanish borrowing costs declined at a bill auction today.

The euro strengthened 0.7 per cent to 98.73 yen after climbing to 98.76 yen, the highest level since July 6th.

The single currency rose 0.6 per cent to $1.2416. It earlier advanced to $1.2428, the strongest since August 7th. The dollar was little changed at 79.43 yen.

European shares, which have risen 16 per cent since June, were up 0.4 per cent at a 13-month high.

Bloomberg