* Moody's changes Portuguese rating outlook to stable
* Portuguese debt outperforms broader euro zone debt rebound
* Bunds rise after biggest one-day loss since September
By Emelia Sithole-Matarise and Ana Nicolaci da Costa
LONDON, Nov 11 Portuguese bond yields fell near
five-month lows on Monday, outperforming other euro zone debt
after Moody's raised its outlook on the country's ratings to
stable from negative.
The agency's move after European markets closed on Friday
was the latest in a series of news that has helped improve the
market's view on Lisbon since a government crisis sent 10-year
yields back above an unsustainable 8 percent in July.
Portuguese 10-year government bond yields
fell as much as 14 basis points to 5.86 percent, near troughs
seen in early June. The yield gap between 10-year and two-year
Portuguese bonds is near its widest since July - reflecting
reduced concerns about the possibility of a debt restructuring.
"The Moody's move on Friday evening does build on a fair
degree of other positive moves that the Portuguese market has
enjoyed over recent weeks ... and the other thing helping has
been positive newsflow on growth," said Philip Shaw, chief
economist at Investec.
Other lower-rated debt also rose, with Spanish and Italian
10-year yields falling 2 basis points to 4.11 percent
and 4.13 percent respectively.
Portugal has started to recover from its worst recession
since the 1970s and the International Monetary Fund said on
Friday it was on track with its bailout and gave the indebted
euro zone country another 1.9 billion euros.
"We live in a world where there's a lot of hunger for yield
and consequently against the backdrop of falling volatility and
quiet newsflow it's no surprise to us to see Portuguese bond
spreads moving tighter," said Mark Dowding, co-head of
investment grade team at Bluebay Asset Management.
"That's clearly been benefiting our investment performance
where we have adopted an overweight stance," said Dowding, whose
team has $24.5 of assets under management and is overweight
Portugal in its government bond portfolio. Bluebay is also
overweight on Italy and Spain.
Euro zone bonds mostly rallied after a sell-off on Friday
when higher-than-expected U.S. jobs numbers brought forward bets
of a cut in U.S. monetary stimulus.
Last week's shock move by the European Central Bank to cut
interest rates - and the stronger commitment to stimulate the
economy that implies - is still supporting European debt
markets. Most traders expect the ECB to pump more cheap
long-term money into markets, according to a Reuters poll on
But investors are also returning to bets on the Federal
Reserve scaling back its programme of bond-buying before March,
after U.S. job growth unexpectedly accelerated in October. A
Reuters poll after Friday's numbers showed more primary dealers
were leaning toward an earlier cut in stimulus.
That is broadly bad news for top-rated government bonds.
German Bund futures settled 1 tick lower on Monday at
141.01, having seen their biggest one-day loss since September
on Friday. German 10-year yields were steady at 1.76 percent