European government bonds rose, led by the securities of higher-yielding nations such as Italy and Spain, amid speculation the Federal Reserve and other central banks will maintain stimulus to keep borrowing costs low.

Spanish (GSPG10YR) 10-year bonds advanced for a third day after Standard & Poor’s reaffirmed the nation’s credit rating and said its commitment to fiscal and structural reform remains strong. Fed Chairman Ben S. Bernanke, who will lead a meeting of policy makers next week, has said repeatedly a reduction in asset purchases wouldn’t mean an end to its program of record easing. Germany’s 10-year bunds rose for a fourth day and U.S. Treasuries and U.K. gilts also gained.

“The main driver of markets in recent weeks has been speculation about what the Fed will do,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit Global Research in Milan. “There is speculation that next week the Fed will try to smooth out a bit the recent reaction. If the Fed tries to clarify a bit what its intentions will be, that could have a big impact. This would be supportive for Spanish and Italian bonds.”

Spain’s 10-year yield fell eight basis points, or 0.08 percentage point, to 4.54 percent at 9:55 a.m. London time after climbing to 4.76 percent on June 11, the highest level since April 9. The 5.4 percent bond due in January 2023 gained 0.635, or 6.35 euros per 1,000-euro ($1,334) face amount, to 106.575.

Italian (GBTPGR10) 10-year yields dropped nine basis points to 4.27 percent, and similar-maturity Portuguese rates slid 21 basis points to 6.31 percent.

Fed Meeting

The Fed is buying $85 billion of Treasuries and mortgage securities each month to put downward pressure on borrowing costs. Bernanke will have an opportunity to retune the central bank’s message during a press conference on June 19 after the Fed’s two-day meeting.

The Wall Street Journal reported that the Fed may push back on expectations of a rate increase.

S&P kept Spain’s credit rating at BBB- and left its outlook on the long-term rating as negative. There is the potential for a downgrade if political support for the reform agenda dwindles, the budget worsens or policies in the euro area falter to stabilize funding costs, analysts Marko Mrsnik and Frank Gill wrote in a statement today.

Germany (GDBR10)’s 10-year bund yield fell four basis points to 1.53 percent after climbing to 1.66 percent on June 11, the highest since Feb. 20.

Belgian 10-year yields dropped seven basis points to 2.32 percent and similar-maturity Dutch yields declined five basis points to 1.89 percent.

Volatility on German bonds was the highest among developed markets today followed by those of Austria and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Spanish bonds returned 5.5 percent this year through yesterday, according to the Bloomberg Spain Sovereign Bond Index. (BSPS) Italian securities gained 2.6 percent, while German bonds declined 0.9 percent, separate Bloomberg indexes show.

Bloomberg