Bonds retreat on demand fall

European bonds fell, extending their worst quarterly loss in a year, as stock market gains sapped demand for the relative safety of government debt.

The decline pushed the yield on the 10-year German bund up from the lowest level in more than five weeks as the MSCI World Index rose 0.6 per cent.

The yield on the 10-year bund rose two basis points to 3.38 per cent in London. The 3.5 per cent note maturing in July 2019 slid 0.14, or €1.4 per €1,000 face amount, to 100.97. The two-year note yield advanced two basis points to 1.38 per cent. Yields move inversely to bond prices.

The yield on the bund, Europe's benchmark government-debt security, rose 39 basis points in the quarter, the most since the three months ending June 2008.

US Treasuries also fell, heading for their steepest first-half loss in three decades, before a report that may show US consumer confidence is rebounding and as rising stocks sapped demand for the safety of fixed-income assets.

Government notes snapped a three-day gain before an industry report that economists said will show consumer sentiment increased to a nine-month high in June.

"Treasuries are falling in anticipation of the data out of the US," said Christoph Rieger, a fixed-income strategist at Commerzbank AG in Frankfurt. "Yields have risen from exceptionally low levels since the beginning of this year, but over the last month or so they have come off their highs, showing there is demand for 10-year Treasuries at four per cent."

The yield on the 10-year note climbed two basis points to 3.5 per cent. It climbed from a record low of 2.04 per cent on December 18, and fell from 4 per cent on June 11. The 3.125 per cent security maturing in May 2019 fell 1/8, or $1.25 per $1,000 face amount, to 96 29/32. A basis point is 0.01 percentage point.

Treasuries fell this year as the global financial crisis abated and the US government began selling a record $3.25 trillion of debt to fund stimulus spending and bank rescues.

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