German two-year notes rose on the first trading day of the year as investors sought the relative safety of fixed-income assets amid concern some governments will struggle to raise funds as the region’s debt crisis deepens. Ten-year bonds also gained even as stocks climbed and copper prices surged to a record on optimism a global economic recovery will be sustained. Portugal has 11 billion euros ($14.7 billion) of debt payments to make in the first quarter, according to data compiled by Bloomberg. Spain has about 45 billion euros of bonds maturing this year, with the first payment of 15.5 billion euros due in April. “It seems there’s strong demand from investors to park their money at the very front end of the German market,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “We don’t want to read too much into a thin market, but perhaps it’s safe to say investors generally remain cautious about what’s going on in the euro region.” Two-year note yields dropped four basis points to 0.82 percent as of 12:36 p.m. in London. The 1 percent security maturing in December 2012 rose 0.08, or 80 euro cents per 1,000- euro face amount, to 100.34, according to Bloomberg generic prices. The yield on 10-year bunds rose two basis points to 2.93 percent. German bonds gained 6.3 percent last year, compared with a 7.8 percent return from U.K. gilts and a 6 percent advance in Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. It’s the top performer in the euro region after Austrian debt. European stocks gained the most in almost two weeks as investors speculated that last year’s rally in equities will continue in 2011. The Stoxx Europe 600 Index gained 0.9 percent. Markets in the U.K. and Ireland are closed today. Manufacturing Growth German notes stayed higher even after a private report showed Europe’s manufacturing industry expanded in December more than initially estimated, boosted by Germany’s export growth. A gauge of manufacturing in the euro area rose to 57.1 from 55.3 the previous month, London-based Markit Economics said today. It had previously reported an increase to 56.8 in December. A reading above 50 indicates expansion. Germany is driving the euro region’s recovery as reviving global growth boosts orders at companies including Daimler AG, encouraging investment and hiring. German business confidence unexpectedly improved to a record last month as declining unemployment encouraged consumer spending even as governments across the region stepped up austerity measures. Bonds from high-deficit countries were little changed. The yield on 10-year Portuguese debt rose four basis points to 6.64 percent. Greek 10-year bond yields fell two basis points to 12.46 percent. Greek government securities were the region’s worst performer last year, losing 20.3 percent. Supply Outlook Moody’s Investors Service put Greece’s Ba1 rating on review for a possible downgrade on Dec. 16 and slashed Ireland’s credit ranking by five steps the following day. The agency also put Spain’s Aa1 on review last month. “The recent bout of rating actions safely underpinned our long-held view that the downgrade cycle is far from being over,” David Schnautz and Peggy Jaeger, analysts at Commerzbank AG, wrote in a research note today. Gains may be limited before Germany sells 5 billion euros of 10-year bonds on Jan. 5. That’s part of 19 billion euros the country plans to raise from bond sales this month. The euro region will issue 863 billion euros of debt this year, Morgan Stanley predicts. While that’s down from 925 billion euros in 2010, it’s “elevated compared to historical levels,” and higher than the average from 2000 to 2008, according to its strategist Elaine Lin. 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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