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German Bonds Fall on Concern Debt-Crisis Steps May Damp Demand

Dec. 27 (Bloomberg) -- German 10-year bonds fell, after the securities rose last week for the first time since Nov. 5, amid concern policy makers will step up action to quell Europe’s debt crisis and damp demand for bunds.

The yield on the debt climbed to an almost seven-month high, while U.S. Treasuries fell as economists said a report tomorrow will probably show consumer confidence is improving, adding to speculation that global economic growth will accelerate next year. Bunds rose last week after Fitch Ratings cut Portugal’s credit ranking, spurring demand for the perceived safety of German fixed-income assets.

“People may be taking advantage to lock in some profit after the rally last week,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf, Germany. “There’s a great deal of uncertainty and for that reason people are taking a wait-and-see approach.”

The bund yield advanced five basis points to 3.03 percent as of 3:54 p.m. in London, after reaching 3.06 percent, the highest since Dec. 16. The 2.5 percent security maturing in January 2021 declined 0.42, or 4.20 euros per 1,000-euro ($1,314) face amount, to 95.45.

The yield reached 3.08 percent on Dec. 16, the most since April 29. The 10-year U.S. Treasury yield increased four basis points to 3.42 percent.

Business Confidence

German government bonds returned 6.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, as the region’s debt woes drove investors to seek the safest fixed-income assets. Greek bonds handed investors a 20 percent loss, the indexes show. The nation sparked the crisis after the Socialist government elected in October 2009 said the budget deficit would be more than twice as large as estimated by the previous administration. Irish securities tumbled 14 percent.

Still, the yield on the 10-year bund has risen almost 1 percentage point since reaching 2.087 percent on Aug. 31, the lowest on record, as renewed signs of growth and asset purchases by the Federal Reserve fueled speculation the global economy will expand next year.

German business confidence increased to a record in December, the Munich-based Ifo institute said Dec. 17. Dutch producer confidence improved to 2.5 in December from 0.3 the previous month, national statistics bureau CBS in The Hague said on its website today.

“The German mood has never been better,” said Glenn Marci, a fixed-income strategist at DZ Bank AG in Frankfurt. “If you look at the euro zone as a whole, it doesn’t look too bad” even with the debt crisis, he said. “Throughout 2011 this will drive down bunds.”

Consumer Confidence

The U.S. Conference Board’s index of consumer confidence increased to 56.4 in December from 54.1 in the previous month, according to the median forecast of 60 economists in a Bloomberg News survey.

European Central Bank purchases of government bonds increased last week to 1.12 billion euros after it settled 603 million euros of deals the previous week, it said today. The bank said on Dec. 2 that it will extend emergency liquidity measures after an aid package for Ireland failed to convince investors that governments will succeed in pushing down their budget deficits.

ECB President Jean-Claude Trichet has said governments must step up efforts to stem contagion and restore confidence and described the bond program as “temporary.”

Irish 10-year yields were little changed at 9.27 percent and the yield on similar-maturity Portuguese securities increased two basis points to 6.86 percent. Spanish 10-year yields were little changed at 5.50 percent.

Bund yields are heading for a fourth successive monthly increase, rising 36 basis points from Nov. 30. The yield fell in each of the first six months of the year.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net.

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

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