German government bonds declined as data showed the nation’s economy grew at the fastest pace in two decades and equities surged, sapping demand for the securities as a haven. Portuguese bonds erased gains as lower borrowing costs at the nation’s 10-year debt sale today failed to dispel concern that its funding difficulties will persist. The 10-year German bund had its first back-to-back losses since Dec. 27 as the Stoxx Europe 600 Index climbed 0.9 percent to a two-year high. German gross domestic product jumped 3.6 percent, the most since data for a reunified Germany began in 1992, the Federal Statistics Office said today. “Generally, German data has been quite positive and that has held the bonds back,” said Orlando Green, assistant director of capital-markets strategy at Credit Agricole Corporate & Investment Bank in London. “One hurdle has been passed,” he said of the Portuguese auction. German 10-year bund yields increased five basis points to 2.98 percent as of 11:32 a.m. in London. The 2.5 percent security due January 2021 fell 0.40, or 4 euros per 1,000-euro ($1,302) face amount, to 95.92. The two-year yield increased five basis points to 0.95 percent. Demand for safer government notes was also limited today as Japanese officials said the country may extend its purchases of bonds sold by a European financial-aid fund. Portuguese Auction The yield on Portugal’s 10-year bond increased nine basis points to 7.10 percent, after declining 37 basis points in the previous two days amid speculation the European Central Bank was buying the securities. Earlier today, the yield fell as low as 6.87 percent. The yield has declined from 7.25 percent on Nov. 11, which was the highest since at least 1997. Portugal sold 599 million euros ($778 million) of bonds due in 2020 at a yield of 6.716 percent, the country’s debt- management agency said today. That compares with 6.806 percent at the previous auction on Nov. 10. The government also placed 650 million euros of bonds due in 2014 at a yield of 5.396 percent, up from the 4.041 percent on Oct. 27. Investors asked for 3.2 times the amount of 10-year bonds sold, up from 2.1 times at the November sale. They sought 2.6 times the 2014 bonds on offer, less than the 2.8 bid-to-cover ratio in October. Losses that pushed the 10-year German bund yield above 3 percent in December may be limited as speculation that Portugal will have to seek aid persists, according to Elwin de Groot, a senior market economist at Rabobank Groep. “The uncertainty remains, as we still haven’t solved the underlying problems,” said de Groot, who’s based in Utrecht, Netherlands. “Demand for bunds will remain supported by these concerns.” Optimism ‘Premature’ It’s too soon to assume Europe’s debt crisis has been contained, ECB council member Axel Weber said. “The optimism of some observers seems premature to me,” Weber said in a speech in Frankfurt late yesterday. Spain’s 10-year bond yield fell five basis points to 5.43 percent. The country is scheduled to sell as much as 3 billion euros of 2016 bonds tomorrow. The Italian 10-year yield fell three basis points to 4.77 percent. It’s due to sell 2015 and 2026 bonds tomorrow. The sales are likely to prove successful, boosting investor confidence ahead of debt offerings through banks, according to Societe Generale SA. “Banks doubtless will be out in force at the auctions this week,” strategists Aro Razafindrakola and Ciaran O’Hagan wrote in an investor report yesterday. “With the auctions this week going well, sentiment can improve. The real test for Portugal will be its syndications.” To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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