By Paul Dobson Nov. 26 (Bloomberg) -- German government bonds rose, pushing the 10-year bund yield to a three-week low, as a proposal by Dubai to delay debt payments spurred investors to seek the safety of assets perceived to be lower risk. The difference in yield, or spread, between Greek and German 10-year bonds widened to the most since June 4. Government-controlled Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. The European Central Bank said M3 money-supply growth, which it uses as a gauge of future inflation, slowed to 0.3 percent in October, the lowest since records began and less than analysts forecast in a Bloomberg survey. “The problem of government deficits hasn’t been resolved yet,” said Elwin de Groot, a senior market economist at Rabobank Groep in Utrecht, the Netherlands. “When fears about potential defaults increase, there is some impact on those that are investing in bonds. They would rather chase the most reliable, safe places and Germany is one of them.” The yield on the 10-year bund fell 6 basis points to 3.20 percent as of 11:20 a.m. in London, the lowest since Nov. 3. The 3.25 percent security due in January 2020 rose 0.47, or 4.70 euros per 1,000-euro ($1,507) face amount, to 100.36. The Greek 10-year government bond yield rose 6 basis points to 5.11 percent, widening the spread with the yield on the equivalent German security to 191 basis points. The spread between German and Irish 10-year bond yields widened 7 basis points to 162 basis points. Greece’s economy will contract more than 1 percent this year and unemployment will exceed 9.5 percent, Bank of Greece Governor George Provopoulos told lawmakers in Athens two days ago, revising October forecasts. Loan Slump The two-year German bond yield fell 6 basis points after loans to households and companies in Europe dropped for a second straight annual decline in October, as the economic slump made banks more reluctant to lend. Loans to the private sector fell 0.8 percent from a year earlier, following a drop of 0.3 percent in September, the ECB said today. On the month, loans slipped 0.2 percent. The yield on the Euribor futures contract expiring in September 2010 fell 4 basis points to 1.49 percent as investors increased bets that the European Central Bank will keep borrowing costs lower for longer. Consumer prices in four German states rose in November from a year earlier, led by higher energy costs. Economists predict that overall German consumer prices, calculated using a harmonized European Union method, will rise 0.5 percent in November from a year ago, the median of 33 forecasts in a Bloomberg News survey shows. Ratings Cut Moody’s Investors Service and Standard & Poor’s cut the ratings on Dubai state companies yesterday, saying they may consider the plan to delay debt payments a default. Credit-default swaps across the region rose yesterday, with Saudi Arabia climbing 11.5 basis points to 86.5 and Qatar rising 5.5 basis points to 99, according to London-based CMA. Contracts linked to Abu Dhabi rose 34.5 basis points to 134.5. Dutch consumer spending fell 3.4 percent in September from a year earlier after a revised 3.8 percent drop in the previous month, the national statistics bureau in The Hague said today. A measure of Spanish retail sales fell 2.7 percent from a year earlier, more than analysts estimated. The German 10-year bund futures contract rose as much as 0.5 percent to 123.26, the highest level since April 28. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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