Nov. 21 (Bloomberg) -- German government bonds gained for the first week in three as some investors bet the rally in stocks may have outpaced prospects for economic growth, boosting demand for the safety of fixed-income assets.

The gains pushed the yield on the 10-year bund to the lowest level since Nov. 3 as the Dow Jones Stoxx 600 Index posted its first weekly drop since October. The spread between German and so-called peripheral countries widened as investors bought the safest assets. Greek 10-year government bonds had their biggest weekly decline since September. Deutsche Bank AG Chief Executive Officer Josef Ackermann said yesterday the recovery is “fragile.”

“There’s growing uncertainty about the outlook for the global economy,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks and money managers. “Bonds will remain well bid in this environment.”

The yield on the bund, Europe’s benchmark government security, declined 12 basis points this week to 3.26 percent as of 5 p.m. in London yesterday, after earlier dropping to 3.25 percent. The yield has decreased from 3.75 percent on June 8, the highest level this year.

Bonds rose this week as reports showing consumer and producer declines fueled concern that the recovery will be slow, strengthening the case for the European Central Bank to keep interest rates at a record low. Producer prices in Germany, the biggest of the 16 economies that share the euro, declined 7.6 percent from a year earlier, the same as in September, the Federal Statistics Office in Wiesbaden said yesterday.

Industrial Orders

Government securities may extend gains next week before a report economists say will show industrial orders in the euro region contracted in September. Orders to industrial companies probably dropped 17 percent from a year earlier, after slumping 23 percent the month before, according to a Bloomberg survey of economists. The European Union’s statistics office in Luxembourg is scheduled to release the report on Nov. 24.

German bonds have returned 2.6 percent since June 30 through Nov. 19, the same as U.S. Treasuries, according to Merrill Lynch indexes.

The difference in yield, or spread, between Greek and German 10-year bonds was at 173 basis points yesterday, the most since July 13. The yield on the Greek securities increased 20 basis points since Nov. 13 to 4.98 percent yesterday. That’s the biggest weekly increase since the period through Sept. 4. Portuguese 10-year bonds yielded 54 basis points more than the bund, from 44 basis points on Nov. 13.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Last Updated: November 21, 2009 02:30 EST