European government bonds declined this week as stock markets rose and Italy sold 7.5 billion euros ($9.7 billion) of debt, sapping demand for fixed-income securities. Two-year notes also fell in the week as investors sought higher yields after Japan and China signaled they will increase efforts to boost economic growth and European equities snapped four weeks of losses. Treasuries fell as China Premier Wen Jiabao said he’s concerned about the safety of his nation’s investment in U.S. government debt. “There’s some optimism in the market about more measures to boost the global economy, and that’s benefiting stocks at the expense of bonds,” said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. “Wen’s comments didn’t help the market, although it’s more of a political statement rather than anything else.” The yield on the German bund, Europe’s benchmark government security, rose four basis points to 3.05 percent by 4:50 p.m. in London. It ended last week at 2.93 percent. The 3.75 percent security due January 2019 slipped 0.38, or 3.8 euros per 1,000- euro ($1,290) face amount, to 105.85. The yield on the two-year note was little changed at 1.31, percent, leaving it 14 basis points higher in the week. Bond yields move inversely to prices. Europe’s Dow Jones Stoxx 600 Index climbed 1.3 percent, bringing its weekly advance to more than 6.3 percent, and the MSCI World Index rose for a fourth day. Debt Auctions European Central Bank Governing Council member Christian Noyer said effective interest rates paid by borrowers are much closer to those in the U.S. or the U.K. than it seems, the Financial Times reported. The ECB hasn’t decided in advance about a floor for rates and buying government bonds is still a possibility, he said. Still, as rates “approach zero, the less efficient are the moves in terms of transmission into the real economy,” he told the newspaper. Demand at Italy’s sale of 1.4 billion euros of bonds maturing in 2034 fell. Investors bid for 1.51 times the amount of debt offered, compared with 1.99 times at an auction in September. The country also sold securities due 2013, 2016 and 2039. Italy may need to issue 230 billion euros of bonds this year as its public finances deteriorate, according to UBS AG estimates. “That’s by far the highest level in the euro zone,” a team of UBS analysts including Meyrick Chapman in London wrote yesterday in a report. “Thus far, we have seen just over 39 billion euros of bond supply from this issuer.” Quantitative Easing The spread between two- and 10-year German notes widened to 175 basis points, from 171 basis points yesterday, as a European Union report showed euro-region retail sales in January dropped for an eighth month. The steeper yield curve suggests investors raised bets the economic outlook will deteriorate. Sales plunged an annual 2.2 percent, from a drop of 2.4 percent in December, the EU statistics office said in Luxembourg today. The spread between the German bund and the 10-year gilt inverted for a second day, with the euro region benchmark yielding 11 basis points more than gilts on speculation the Bank of England’s purchases of government securities will keep gilt yields low. The 10-year bund yielded more than 10-year gilts for the first time on a closing basis yesterday since February 2002. The ECB stopped short of introducing quantitative easing, which is aimed at injecting cash into the economy, after it cut the benchmark rate by 50 basis points to 1.50 percent on March 5. The Bank of England announced a plan for the measure on the same day, and started to flood cash into the market this week by buying government bonds.

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