By Keith Jenkins Dec. 21 (Bloomberg) -- Germany’s bonds fell for the first time in four days as gains in stocks reduced demand for the safety of government debt and the European Commission forecast that the economy of 16-nation euro region may gather strength. Yields on 10-year securities rose the most on a daily basis since Dec. 4 after the biggest weekly drop of December. The MSCI World Index of shares increased for the first time in three days, advancing 1 percent. “Equity markets are higher, risk appetite is up, and it looks like last week’s rally in bunds was overdone, so we’re seeing a small correction,” said Peter Chatwell, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA. The yield on the 10-year bund, Europe’s benchmark government security, increased 6 basis points, or 0.06 percentage point, to 3.19 percent at 4 p.m. in London. The rate dropped 7 basis points last week, the biggest decrease since the five days ended Nov. 27. The 3.25 percent security maturing in January 2020 fell 0.51 today, or 5.1 euros per 1,000-euro ($1,432) face amount, to 100.46. The euro region may grow 0.7 percent next year and 1.5 percent in 2011 after shrinking 4 percent in 2009, the Brussels- based commission, the European Union’s executive, said in a quarterly report today. In the fourth quarter, gross domestic product probably rose 0.2 percent from the previous quarter, when it increased 0.4 percent, it said. The yield premium of German bonds over U.S. debt increased today to 45 basis points, the widest level since August 2007, before narrowing back to 43 basis points. The U.S. Treasury will auction about $112 billion of two-, five-and seven-year notes next week, according to Commerzbank AG. Bunds ‘Expensive’ “Bunds in the 10-year sector are expensive relative to U.S. Treasuries,” said David Schnautz, an interest-rate strategist at Commerzbank in Frankfurt. “The high auction volumes in Treasuries between Christmas and the new year should have adverse repercussions for bunds.” The yield premium investors demand to hold 10-year Greek instead of German bonds rose 10 basis points to 276 basis points, the widest level since March 17, on continued concern the Mediterranean nation will have trouble paying its debt. The spread has widened more than 100 basis points since Dec. 1. “It is, or will soon be, time to buy Greek government debt,” Ciaran O’Hagan, a strategist in Paris at Societe Generale SA, wrote in a research note today. “We expect large cash inflows coming into the market in January will help restore confidence.” The spread may narrow to 150 basis points by the end of the first quarter, O’Hagan wrote. Greece’s Finance Minister George Papaconstantinou told BBC Radio 4 yesterday in an interview that previous governments had misled the world about their fiscal situation. Standard & Poor’s on Dec. 16 joined Fitch Ratings in cutting Greece’s credit rating to BBB+ on concern the deficit- reduction measures won’t go far enough. European Central Bank governing council member Athanasios Orphanides, the governor of the Central Bank of Cyprus, said today in an interview with the Financial the risk of a default by Greece or any other euro member state is “unthinkable.’ German bunds have returned investors 3.2 percent this year, according to indexes compiled by Bank of America Merrill Lynch. U.S. Treasuries are down 2.4 percent, heading for their first annual decrease in a decade. A report due tomorrow from Nuremberg-based GfK AG may show German consumer confidence falling in January for the third consecutive month. The sentiment index will decline to 3.5, the lowest level since August, from December’s outcome of 3.7, according to a Bloomberg survey. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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