European notes declined as governments prepared to sell at least 12 billion euros ($15 billion) of securities this week to buoy their struggling economies. German two-year notes slipped for a third day before a sale of as much as 8 billion euros of a new bond in that maturity on March 11. The Netherlands, Austria and Italy also plan issuance this week. Two-year securities posted their biggest weekly gain in a month last week as the European Central Bank cut its main interest rate by 50 basis points to 1.50 percent and signaled more reductions to come. “There’s some supply pressure in the market and that’s affecting demand for bonds,” said Wilson Chin, a fixed-income strategist in Amsterdam at ING Groep NV. “The rally last week was massive. Bonds may find it difficult to push ahead in the near term even as the fundamental picture remains supportive.” The yield on the German two-year note rose four basis points to 1.22 percent by 9:12 a.m. in London. It dropped to 1.10 percent March 5, the lowest level since Bloomberg began compiling the data in 1990. The yield on the 10-year bund, Europe’s benchmark government security, fell two basis points to 2.90 percent. The price of the 3.75 percent security due January 2019 gained 0.19, or 1.9 euros per 1,000-euro ($1,262) face amount, to 107.12. Bond yields move inversely to prices. Euro-region nations are increasing sales of debt to revive an economy sliding deeper into its worst recession since World War II. Gross domestic product in the 16-nation region may shrink as much as 3.2 percent this year, the ECB said March 5. Governments will sell almost 18 billion euros of bonds this week, according to WestLB. “Steeper Curve” Declines for bonds may be limited before a survey that will probably show investors’ confidence in the region fell in March. The index by Germany-based Sentrix research institute measuring sentiment slipped to minus 38, from minus 36.1 in February, according to the median estimate of eight economists surveyed by Bloomberg. The report is scheduled for release at 10:30 a.m. German time. The difference in yield, or spread, between two- and 10-year German notes narrowed to 173 basis points from 175 basis points on March. 6. The spread will widen and the yield curve will steepen more than in the U.K. and the U.S. as the ECB cuts interest rates, according to HSBC Securities Inc. The ECB has stopped short of introducing an additional measure, known as quantitative easing, which is aimed at injecting cash into the economy. The Bank of England announced a plan for the measure after lowering its base rate by half a percentage point on March 5. “The ECB appears reluctant to use quantitative easing, which should result in a steeper curve relative to the U.K. and U.S.,” London-based HSBC analysts including Steven Major, Peng Yu and Astrid Schilo, wrote in a note to clients. “Conventional monetary easing has further to go and this should underpin the short-end of the curve.”

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