European Bonds Poised for Weekly Gain as Investors Flee Stocks

European government notes are poised for the biggest weekly gain in three months as ongoing concern about widening credit market losses, record oil prices and the weaker dollar stoked demand for the safest assets.

Two-year note yields are at a 13-month low after Asian equities this week slipped to a two-month low and slumping U.S. stocks wiped out this year's gain for the Standard & Poor's 500 Index. Losses from U.S. subprime mortgage foreclosures, coupled with slowing economic expansion and falling house prices, could reach $300 billion, the OECD said yesterday.

``Bonds aren't being driven by fundamentals, but by fear and uncertainty on the impact of the subprime mortgage market,'' said Nick Stamenkovic, a strategist at RIA Capital Markets in Edinburgh. ``People will continue to move into bonds at the expense of equities particularly when there are funding problems in the run-up to the year-end.''

The yield on the two-year German note fell 4 basis points to 3.57 percent by 8:15 a.m. in London, leaving it 23 points lower in the week. The yield on the 10-year bund, Europe's benchmark, has dropped 12 basis points since Nov. 16.

The price of the 4 percent security due September 2009 rose 0.07, or 70 euro cents per 1,000-euro ($1,492) face amount, to 100.73 today. Yields move inversely to bond prices.

European bonds held gains after a report showed German import prices, an early indicator of inflation pressures in the euro region's largest economy, increased the most in almost a year in October, led by a surge in oil prices.
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