Nov. 7 (Bloomberg) -- German government bonds posted a weekly decline, the fourth in five weeks, as policy makers began preparing the ground for ending measures designed to revive economic growth.

The 10-year bund, Europe’s benchmark debt security, fell for five straight days. European Central Bank President Jean- Claude Trichet said Nov. 5 after policy makers left interest rates unchanged that the economy is improving and all liquidity measures are unlikely to be utilized. The Dow Jones Stoxx 600 Index of European equities snapped a two-week decline, damping demand for fixed income.

“The market is torn between two competing macroeconomic impulses, where on the one hand rates will stay low for a long time, and on the other the economy is recovering on a cyclical round,” said Peter Schaffrik, a fixed-income strategist in London at Commerzbank AG, Germany’s second-biggest lender. “Trichet is doing a very good job of straddling those two elements and that’s why the market is where it is.”

The yield on the bund rose 14 basis points in the week to 3.37 percent as of yesterday. The two-year note yield dropped 1 basis point to 1.27 percent. The moves drove the difference in yield between the two securities 15 basis points wider to 209 basis points, the biggest spread since Sept. 24.

Other European government bonds fell during the week, with the yield on the French 10-year security rising 11 basis points to 3.64 percent and the Italian 10-year yield adding 1 basis point to 4.11 percent.

‘Timely and Gradual’

The ECB left its benchmark interest rate at 1 percent, in line with economists’ forecasts, at its Nov. 5 policy decision.

“Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said in Frankfurt following the decision. “The Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term.”

Bunds may extend declines next week as a report shows the euro region exited recession in the third quarter. Gross domestic product expanded 0.5 percent, compared with a contraction of 0.2 percent in the second quarter, the European Commission will say on Nov. 13, according to the median forecast of 34 economists surveyed by Bloomberg News.

German government bonds and U.S. Treasuries both handed investors a 0.5 percent loss since the end of September, while U.K. gilts lost 2 percent, Merrill Lynch & Co. indexes showed.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

Last Updated: November 7, 2009 02:30 EST