German government bonds climbed as speculation the Federal Reserve is preparing to increase purchases of Treasuries boosted demand for bunds as an alternative investment. The 10-year bund yield fell the most in two weeks as the Federal Open Market Committee said too-low inflation may warrant another wave of unconventional monetary easing. Analysts said a Portuguese auction of as much as 1 billion euros ($1.3 billion) of debt due in 2014 and 2020 may meet robust demand after Spain, Ireland and Greece sold securities yesterday. Germany sells five-year notes today. “The Fed moved the base-case toward easing unless there is a significant turnaround,” a team of European interest-rate strategists at Nomura International Plc, led by Nick Firoozye in London, wrote in an investor note dated yesterday. “We expect this change of tone to remain largely supportive of core European markets. We don’t expect any major digestion problems” with the Portuguese sale, the analysts wrote. The 10-year bund yield fell as much as 9 basis points to 2.37 percent, the biggest decline since Sept. 7. The yield was at 2.39 percent as of 7:50 a.m. in London. The 2.25 percent security maturing in September 2020 jumped 0.53, or 5.30 euros per 1,000-euro face amount, to 98.77. France’s 10-year bond yielded 2.76 percent, down 5 basis points, with the yield on Italy’s similar-maturity security declining 3 basis points to 3.90 percent. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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