DUTCH bonds rose for the first time in four days as the Netherlands sold €2bn of debt amid optimism that the collapse of its government yesterday won't derail efforts to implement budget cuts.
Two-year Dutch yields dropped the most in almost five months as the government auctioned bonds due in 2014 and 2037.
Meanwhile, Spanish bonds gained as the country sold close to its maximum target at a bill sale.
German bunds fell, pushing 10-year yields up from Monday's record low, as stocks gained and a report showed US new home sales were stronger than economists forecast, undermining demand for the safest assets.
"We are comfortable now that this is out of the way, this is not the start of a sustained spread widening," David Schnautz, a fixed-income strategist at Commerzbank in London, said of the Dutch bond sale.
"There's a lot of hype regarding the Netherlands and this was exacerbated by the looming supply. The commitment to fiscal prudence is very high across the Dutch political spectrum."
The Dutch two-year yield declined 16 basis points, or 0.16 percentage points, to 0.36pc in late afternoon trading in London after falling as much as 18 basis points.
Spanish bonds advanced as the nation sold €1.9bn of bills, compared with a maximum target of €2bn. The three-month securities were auctioned at an average rate of 0.634pc, versus 0.381pc on March 27, the Bank of Spain said.
The government sold six-month bills at 1.58pc, up from 0.836pc. Spanish two-year note yields declined 18 basis points to 3.4pc. Italian notes also gained as the nation auctioned €2.5bn of zero-coupon notes. The two-year yield dropped 10 basis points to 3.29pc.
Dutch Prime Minister Mark Rutte told politicians to face up to the country's economic woes to ensure the Netherlands evades the debt crisis, as opposition lawmakers said there was no need to stick to budget targets.
Mr Rutte, addressing parliament in The Hague less than 24 hours after he tendered his cabinet's resignation, said the need to adopt measures "hasn't diminished" after Geert Wilders's Freedom Party pulled out of budget talks on April 21, ending its support for the minority government.
Volatility in Dutch securities was the highest of 24 developed-nation markets, followed by Spain and Germany, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg news service.