German two-year government bonds were set for their third straight weekly decline as signs the global economic recovery is gaining momentum damped demand for the euro-region’s safest assets. The two-year note yield was within 2 basis points of the highest level in almost a month after a U.S. labor market report yesterday showed a drop in weekly jobless benefits. Data today showed Japan’s gross domestic product grew at an annualized 1.5 percent rate in the three months ended June 30, faster than the 0.4 percent reported last month. Italy plans to sell 7 billion euros ($8.9 billion) of 12-month treasury bills and 3.5 billion euros of 3-month bills today. “Changes in risk attitude have driven the two-year note yield higher,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “There are still some risks at the front end of the euro government market,” as signs of economic recovery will hurt short-term debt more than longer- term bonds, he said. The two-year note yield was at 0.69 percent as of 7:50 a.m. in London. It reached 0.71 percent earlier, the highest since Aug. 11. The yield on the 10-year bund, Europe’s benchmark security rose 2 basis points to 2.34 percent. German bonds have returned 9 percent this year, compared with a 7.5 percent gain for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt has gained 3.7 percent. To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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