Aug. 3 (Bloomberg) -- German 10-year bonds rose as a report showed personal income and spending in the U.S. stalled as the recovery stagnated. The two-year German yield held near the lowest in a week as Commerce Department figures showed consumer spending was unchanged and last month’s gain was smaller than previously estimated. Bonds were also boosted as as data showed June European producer-price inflation unexpectedly slowed and stocks failed to extend yesterday’s rally. “There’re still a lot of uncertainties in the U.S. economies, and the latest data just added to the nervousness,” said Nicholas Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “People will seek a safe haven in this environment. Treasuries as well as other top quality bonds, including those in the euro zone, will benefit.” The yield on 10-year bunds dropped seven basis points, or 0.07 percentage point, to 2.63 percent at 1:45 p.m. in London. The 3 percent security maturing in July 2020 rose 0.60, or 6 euros per 1,000 euro ($1,325) face amount, to 103.16. The two- year note yield dropped five basis points to 0.74 percent after touching 0.73 percent, the lowest level since July 22. U.S. incomes posted no increase for the first time since September and the savings rate reached the highest in a year, the Commerce Department figures showed. Producer Prices Bonds stayed higher after a report showed producer prices in the euro region rose 3 percent in June from a year earlier, after increasing 3.1 percent in the previous month. Prices rose 0.3 percent from May. Economists had projected prices would rise 3.1 percent from last year and 0.4 percent from the previous month. Austrian debt, the best-performing government securities in the euro region this year, stayed higher after the nation’s debt agency sold 880 million euros of 4.15 percent bonds maturing in 2037 at a yield of 3.728 percent. The sale drew bids 2.1 times the amount of securities offered. The yield on the 10-year note dropped seven basis points to 3.03 percent. The Austrian debt has returned 7 percent this year, compared with a 6.2 percent gain for German bonds and a 6.4 percent gain for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have handed investors a 16 percent loss year to date, making them the worst-performing government securities in the euro region. Inflation Outlook Inflation expectations decreased, as measured by breakeven rates. The German five-year rate, or yield difference between regular and index-linked bonds of the same maturity, fell two basis points to 0.91 percentage point. That’s below this year’s average of 1.19 percentage points. The implied yield on the December Euribor contract has fallen four basis points since the end of the second quarter, indicating traders pared bets on interest-rate increases by the European Central Bank. Bonds also rose on speculation the Federal Reserve will renew its asset purchases, known as quantitative easing, to revive the U.S. economy, said Orlando Green, a London-based fixed-income strategist at Credit Agricole SA. “There’s talk in the market that the Fed might resume the QE program,” Green said. “Bonds are being supported by this dovish sentiment.” --Editors: Keith Campbell, David Clarke. 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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