German Two-Year Note Yields Advance to Four-Week High Before Bond Auction

German two-year note yields touched the highest in more than four weeks before data that economists said will show business confidence climbed to a five-month high, damping demand for the safest government debt.

The yield gap between two- and 30-year securities was within four basis points of the widest since Dec. 2 as Germany prepared to auction as much as 3 billion euros ($3.9 billion) of 3.25 percent July 2042 securities. Bondholders hope to find “common ground” on a Greek debt swap after finance ministers pushed for greater concessions, Charles Dallara, managing director of the Institute of International Finance, said yesterday.

“The Ifo survey is likely to dampen recession fears further today which may act to keep bunds on the backfoot,” Sercan Eraslan, a fixed-income strategist at WestLB AG in Dusseldorf, wrote in an e-mailed research note. “However, we do not foresee such causing a problem in terms of the other big event today, the 30-year bund tap.”

Germany’s two-year note yield rose two basis points, or 0.02 percentage point, to 0.24 percent at 8:50 a.m. London time, after climbing to 0.25 percent, the highest since Dec. 23. The 0.25 percent note due in December 2013 fell 0.03, or 30 euro cents per 1,000-euro face amount, to 100.025.

The 30-year bond yield advanced one basis point to 2.64 percent, with the spread over two-year notes at 241 basis points, after reaching 245 basis points yesterday.

Business Climate

The Ifo institute’s business climate index, based on a survey of executives, rose for a third month to 107.6 in January from 107.2 in December, according to the median estimate of 42 economists in a Bloomberg survey.

Greek two-year notes swung between gains and losses, with the October 2022 benchmark yield little changed at 33.37 percent. The price was 21.265 percent of face value.

In a speech at the World Economic Forum in Davos, Billionaire George Soros will say it is “more likely than not” that Greece will formally default in 2012, Newsweek Magazine reported on Jan. 23, citing an interview in New York.

Italian two-year notes declined, pushing the yield on the securities up 15 basis points to 3.79 percent. Italy’s 10-year yield was eight basis points higher at 6.25 percent.

Bunds have handed investors a loss of 1 percent this year, after gaining 9.7 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French government bonds have dropped 0.3 percent and Greek debt has returned 0.9 percent in 2012, the indexes show.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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