By Paul Dobson Jan. 4 (Bloomberg) -- European government bonds fell, pushing the yield on the 10-year German bund to the highest level in more than three months, on speculation that increased debt sales will overwhelm demand for fixed-income assets. The decline helped extend last year’s 44 basis-point increase for the 10-year bund yield, the biggest annual advance since a 64 basis-point jump in 2006. Euro-region nations will issue a gross 912 billion euros ($1.3 trillion) of debt this year, 82 billion euros more than in 2009, Citigroup Inc. analysts wrote in a note to investors. “It could be that we see a year when yields will go higher,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse AG in Zurich. “Supply will be a factor.” The yield on the benchmark 10-year bund rose as much as 5 basis points to 3.43 percent, the highest level since Sept. 22, according to generic data compiled by Bloomberg. It was at 3.39 percent as of 11:10 a.m. in London. The 3.25 percent security due January 2020 fell 0.05, or 0.5 euro per 1,000-euro face amount, to 98.82. The two-year note yield rose 3 basis points to 1.36 percent. European countries may sell more bonds in January and February than their average monthly requirement for the year, London-based Citigroup strategists Nishay Patel and Steven Mansell wrote in an investor note published today. They predicted 95 billion euros of gross issuance this month. Bond Auctions Germany will sell 6 billion euros of 3.25 percent 10-year bonds on Jan. 6. France will issue as much as 9 billion euros of bonds maturing in 2018, 2019, 2023 and 2041 the following day. Sales of German securities will rise to a record 343 billion euros in 2010, from 329 billion euros this year and 213 billion euros in 2008, the Federal Finance Agency said Dec. 17. Greek 10-year government bonds rose, narrowing the difference in yield, or spread, with corresponding German government bonds by 9 basis points to 230 basis points, the least since Dec. 14. Greece’s Finance Ministry will submit a draft of its planned four-year growth and stability program to the European Commission today, Euro2day.gr reported. The spread between Irish and German 10-year bonds narrowed 9 basis points to 136, the smallest gap since Jan. 5, 2009. The yield on the 10-year Irish security fell 8 basis points to 4.76 percent. Europe’s manufacturing industry expanded for a third month in December, according to an index of manufacturing, based on a survey of purchasing managers in the 16-nation euro area. The index rose to 51.6 from 51.2 in November, London-based Markit Economics said today. That was in line with an initial estimate released on Dec. 16. A reading above 50 indicates expansion. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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