German bunds fell for a second day, extending yesterday’s drop when bids at a sale of the bonds fell short of the maximum amount on offer, amid speculation the euro area may be moving nearer to common debt sales. Bund yields climbed to the highest in almost four weeks after German business confidence unexpectedly rose for the first time in five months in November. Spanish and Italian bonds advanced even after German Vice Chancellor and Economy Minister Philipp Roesler said Chancellor Angela Merkel’s government remains firm in rejecting euro bonds. Japanese investors are selling bunds and buying more U.K. debt, Ministry of Finance data showed. “We heard of some selling from Asian investors, especially in Japan,� said Matteo Regesta, a senior interest-rate strategist at BNP Paribas SA in London. “All this talk about the possibility of the common bond is at best speculative, but it’s perhaps enough to hurt the bunds.� The 10-year bund yield rose as much as 12 basis points, or 0.12 percentage point, to 2.26 percent, the highest since Oct. 28, and was at 2.22 percent at 10:15 a.m. London time. The 2 percent security due in January 2022 fell 0.645, or 6.45 euros per 1,000-euro ($1,340) face amount, to 98.025. The two-year note yield increased seven basis points to 0.51 percent. Issuance Conditions As policy makers seek a resolution to the debt crisis that has roiled the euro area’s bond markets for two years, the European Commission advanced the idea of bonds sold jointly by the euro area’s 17 nations in proposals yesterday. Germany’s government is concerned it may have to agree to the issuing of the common securities under certain conditions, Bild reported, without saying where it got the information. A transfer union would be wrong because it would mean Germany would face higher interest rates, Roesler said in a speech to parliament today. “The selloff in German bonds continues from yesterday while discussion around euro bonds doesn’t support bunds, because ultimately it will be some form of credibility transfer� from AAA rated nations including Germany to weaker sovereigns, said Norbert Aul, a European rates strategist at RBC Capital Markets in London. UBS AG Chief Executive Officer Sergio Ermotti said he wouldn’t consider bonds of any euro-area country as free from risk. German GDP Gains The Munich-based Ifo institute’s business climate index increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey. German gross domestic product advanced 0.5 percent in the third quarter from the previous three months, the Federal Statistics Office said today, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth notched in the second quarter. The Stoxx Europe 600 Index of shares climbed 0.9 percent and the euro climbed 0.2 percent to $1.3374. Spanish 10-year bonds rose for the first time in four days, driving the yield down seven basis points to 6.58 percent. Prime minister-elect Mariano Rajoy will press the European Central Bank to buy more debt from euro-region sovereigns to contain yields, El Mundo newspaper reported. French securities also rose, pushing 10-year yields down by six basis points to 3.63 percent. Italian rates were little changed at 6.98 percent. German bonds have handed investors a return of 7.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds have lost 2.6 percent. To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; 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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