By Paul Dobson Nov. 23 (Bloomberg) -- European government bonds fell after a report showed manufacturing and services industries expanded for a fourth month in November, adding to evidence the region’s economic recovery is taking hold. The yield on the 10-year German bund snapped two days of declines as Markit Economics said its index, based on a survey of purchasing managers in the euro-area, rose to 53.7 from 53 in October, ahead of the 53.4 predicted in a Bloomberg survey. The Organization for Economic Cooperation and Development said its 30 member countries collectively expanded in the third quarter for the first time in more than a year. “Signs that the economies are continuing to grow, although at a moderate pace, are weighing a bit on government bonds,” said Karsten Linowsky, a fixed-income strategist in Zurich at Credit Suisse Group AG. The yield on 10-year German government bond rose 2 basis points to 3.27 percent as of 3:20 p.m. in London. The 3.25 percent security due January 2020 fell 0.18, or 1.8 euros per 1,000-euro ($1,499) face amount, to 99.80. The Dow Jones Stoxx 600 Index of European shares climbed 2.2 percent. The OECD economies grew 0.8 percent in the three months through September, compared with no change in output in the previous period, the organization said. The Ifo institute in Munich may say tomorrow that its German business climate index rose to 92.5 in November from 91.9 in October, an eighth successive increase, according to the median estimate of 37 analysts in a Bloomberg survey. The yield on the Euribor futures contract expiring in June 2010 rose 4 basis points to 1.18 percent as investors increased bets that the European Central Bank will raise borrowing costs. No Rate Increase German government bonds gained last week as reports showing consumer and producer declines fueled concern that the recovery will be slow, strengthening the case for the ECB to keep interest rates at a record low and boosting demand for the safety of fixed-income assets. ECB Governing Council member Miguel Angel Fernandez Ordonez indicated today the bank doesn’t plan to raise its benchmark interest rate anytime soon. “What the markets are saying is that there is recovery in Europe but that we are not going to raise rates until the second half” of 2010, Ordonez told reporters in Madrid today. The difference in yield, or spread, between Greek and German 10-year bonds narrowed to 166 basis points, from a four- month high of 172 basis points on Nov. 20. Irish 10-year bonds yielded 150 basis points more than the bund, down from 153 on Nov. 20. Bond Sales Spreads widened last week as declining stocks and doubts about the strength of the recovery prompted investors to shift to what they considered safer securities. The Netherlands plans to sell as much as 1 billion euros of 2015 and 2018 securities on Nov. 24. Germany is selling as much as 5 billion euros of 5-year notes on Nov. 25. Italy may sell 2.5 billion euros of zero-coupon notes due in September 2011 on Nov. 25. It plans to sell 4.25 percent 2020 bonds on Nov. 27. There are no sales of bonds or notes by euro- region governments today. “Both the supply and the macro numbers probably got the market a bit wary,” said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA. It may be “difficult for the supply to be taken on board.” German government bonds returned 2.5 percent since the end of June, compared with 2.6 percent for U.S. Treasuries and 3.4 percent for U.K. gilts, according to Merrill Lynch & Co. indexes. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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