German government bonds fell after Chinese Vice Premier Wang Qishan said his nation took “concrete action” to help the European Union with its debt crisis. Portuguese bonds fell, driving the yield gap over bunds higher for a tenth straight day, as Moody’s Investors Service said it may cut the nation’s credit rating. Spanish debt stayed lower after the country sold short-term debt. Two-year German notes also dropped, snapping four sessions of gains. China, which had vowed not to cut its holdings of European bonds, “has taken concrete action to help some EU members counter the sovereign-debt crisis,” Wang said at a forum in Beijing. Asian stocks and commodities rose, reducing demand for safer assets. “Comments from China provided some relief for the market on the debt crisis, and that’s reflected in the bund yields,” said Rainer Guntermann, a fixed-income analyst at Commerzbank AG in London. “Demand for safe-haven assets eased a bit today. It appears to be a risk-on day, with prices of stocks, commodities and oil rising.” The yield on the bund, the region’s benchmark government security, rose two basis points to 2.99 percent at 9:45 a.m. in London. The 2.50 percent bond maturing in January 2021 fell 0.15, or 1.5 euros per 1,000-euro ($1,319) face amount, to 95.85. German bonds have returned 6 percent this year, compared with a 6.7 percent gain for U.K. gilts and 5.7 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Downgrade Threat Premier Wen Jiabao said in October that China supports a stable euro and won’t cut its holdings of European bonds. The Portuguese government said last week that China made a “clear statement” of financial support during Finance MinisterFernando Teixeira dos Santos’s visit to Beijing this month. The benchmark Stoxx Europe 600 Index climbed 0.7 percent while the MSCI Asia Pacific index of stocks rose 1 percent. The yield on 10-year Portuguese bonds rose three basis points to 6.72 percent, pushing its spread over the benchmark German bund two basis points wider to 351 basis points. Two-year note yields were also little changed at 4.54 percent. Moody’s put Portugal’s A1 long-term and Prime-1 short-term government bond ratings on watch today, saying the nation may have its bond rating cut by a notch or two because of the economy’s “sluggish” growth. Moody’s will “evaluate” the situation if Portugal does request a bailout, Kathrin Muehlbronner, an analyst at Moody’s, said by phone today. Moody’s also said it wouldn’t be negative if the nation resorts to tapping the European Financial Stability Facility. Spanish Sale Portugal said yesterday that its budget deficit narrowed in the 11 months through November, the first annual reduction in the shortfall this year. Spanish bonds were little changed, with the 10-year yield up one basis point at 5.54 percent. The government sold six- month bills at a yield of 2.597 percent, up from 2.111 percent at a similar sale on Nov. 23. Holders of Spanish securities lost 5.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Even as Spanish bond yields are approaching their highest level in eight years, they still don’t offer enough reward to tempt fund managers 1,000 miles north in Scotland. “You should ask if any of us would buy Spanish government bonds yielding five-and-a-half percent,” Bill Dinning, head of strategy at Aegon Asset Management, said during a discussion among three investors overseeing 360 billion pounds ($557 billion) at Bloomberg’s Edinburgh office. “Probably not.” Moody’s said on Dec. 15 it might cut the nation’s Aa1 credit rating, citing “substantial funding requirements, not only for the sovereign but also for the regional governments and the banks.” The cost of insuring Spanish government debt climbed to a three-week high yesterday, with five-year contracts protecting $10 million of debt up $12,000 to $344,000 a year. “It’s too risky,” said Andrew Milligan, head of strategy at Standard Life Investments. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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