German 10-year government bonds rose for a third day after the world’s strongest earthquake in six years struck northern Japan, boosting demand for the perceived safety of fixed income. The extra yield investors demand to hold Irish, Portuguese and Spanish securities instead of benchmark 10-year bunds widened before leaders from the euro area meet to discuss measures to tackle the debt crisis. Italian bonds were higher before the nation sells as much as 5 billion euros ($6.9 billion) of 2015 and 2026 debt. Bunds headed for a weekly gain after unrest in the Middle East and North Africa boosted demand. “There are safe-haven flows because of the Japanese earthquake, the crisis in North Africa and uncertainties about the debt crisis,” said Birgit Figge, a bond strategist at DZ Bank AG in Frankfurt. “There are a lot of uncertainties in the market and that’s driven bunds higher.” The yield on the German bund was five basis points lower at 3.20 percent as of 10:01 a.m. in London. It earlier reached 3.18 percent, the least since March 2. The 2.5 percent security due January 2021 rose 0.405, or 4.05 euros per 1,000-euro face amount, to 94.18. The two-year note yield also fell five basis points, to 1.65 percent. Portuguese 10-year government bonds declined a fifth day, driving the yield four basis points higher to 7.54 percent and widening the spread over bunds by nine basis points to 434 basis points, or 4.34 percentage points. The yield difference between Irish and German bonds jumped eight basis points to 633 basis points and the spread between Spanish and German 10-year yields was three basis points wider at 229 basis points. Leaders Meet EU leaders gather today in Brussels, aiming to agree to a blueprint to improve competitiveness, a plan Germany demanded as a condition for expanding the bailout effort. Investors will also be looking for signs that differences over how to solve the debt crisis are narrowing ahead of a second meeting on March 24- 25 that German Chancellor Angela Merkel has said will produce a comprehensive package of measures. Stocks fell in Asia and Europe after an 8.9 magnitude earthquake rocked buildings in Japan’s financial center and a tsunami as high as 10 meters was reported in northern Japan, boosting demand for government bonds. Bunds pared gains and Treasuries erased an advance after the Bank of Japan pledged to ensure financial stability. The MSCI Asia Pacific Index of shares declined 1.4 percent, while Stoxx Europe 600 Index lost 0.7 percent. As violence escalates in Libya, protests are scheduled today in Saudi Arabia, holder of the world’s largest oil reserves. Security forces broke up a protest yesterday in Qatif, Saudi Arabia. Police fired above the crowd of 120-150 people to end the rally after a policeman taking video to document the event was attacked, Major General Mansour al-Turki, an interior ministry spokesman, said in an interview. Three people were injured, two protesters and one policeman, he said. A report showed German inflation accelerated to the fastest pace in more than two years in February. The rate increased to 2.2 percent, from 2 percent in January, according to the Federal Statistics Office in Wiesbaden. To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Garth Theunissen in London at gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Source