German bonds rose, snapping a five-day decline, after Standard & Poor\'s said European efforts to roll over Greek debt may constitute an default. Spanish and Italian bonds fell as S&P said a French proposal to swap maturing Greek debt for new securities would qualify as a distressed exchange because it offers creditors less than originally promised, possibly prompting a \"selective default\" rating. Greek two-year notes climbed for the fourth day in five amid speculation the European Central Bank will continue to accept the nation\'s government bonds as collateral. \"The S&P news is weighing on sentiment,\" said Michael Leister, a fixed-income analyst at WestLB AG in London. \"The treatment by ratings agencies of any Greek bailout or rollover plan is crucial given the secondary effects if they were to deem it a credit event. We are seeing bunds up, so it clearly indicates that the risk-on sentiment is losing momentum.\" Ten-year bund yields fell three basis points to 3.01 per cent in London. They reached 3.05 per cent on July 1, the most since June 9. The 3.25 per cent security due July 2021 gained 0.245, or €2.45 per €1,000 ($1,453) face amount, to 102.065. Two-year German note yields dropped one basis point, to 1.64 per cent. They reached 1.67 per cent on July 1, also the most since June 9. Article continues below Factory prices Bunds stayed higher as a report showed European producer — price inflation slowed more than economists forecast in May. Factory-gate prices in the euro region increased 6.2 per cent from a year earlier after rising 6.7 per cent in April, the European Union\'s statistics office in Luxembourg said today. Economists had projected a gain of 6.3 per cent, according to the median of 21 estimates in a Bloomberg News survey. Greek two-year notes rose for the fourth day in five amid speculation that the ECB will continue to accept Greek government debt as collateral, even if S&P deems the nation in \"selective default\" if a French-led bond rollover deal is struck, maintaining a lifeline to the nation\'s banks. The ECB declined to comment on the S&P release. Greece\'s two-year note yields fell 87 basis points to 25.97 per cent. Its 10-year government bond fell, pushing the yield up 12 basis points to 16.45 per cent. \"It is difficult to think of the ECB precipitating the kind of crisis for Greece in which it wouldn\'t take their bonds as collateral,\" said Luca Jellinek, head of European interest- rate strategy at Credit Agricole CIB in London. \"To the extent the Greek government bonds are OK, that would indicate the market thinks a way will be found to get the ratings agencies to not consider the Greek paper defaulted or that the ECB will say that they will accept this paper.\" The yield difference, or spread, between Greek 10-year bonds and German bunds of similar maturity, widened 15 basis points to 1,345 basis points. Spanish and Italian bonds trimmed last week\'s gains. The declines pushed the yield on Spain\'s 10-year security three basis points higher to 5.41 per cent, while the yield on Italian debt of similar maturity advanced five basis points to 4.92 per cent. Irish 10-year bond yields were little changed at 11.61 per cent, after climbing seven basis points to 11.87 per cent earlier.