Bund yields hit 17-month high, rupee slumps

Mon Aug 19, 2013 7:11am EDT
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By Marc Jones

LONDON (Reuters) - Rising expectations the Federal Reserve will soon scale back its stimulus drove German and U.S. bond yields to multi-month highs on Monday and dealt a blow to emerging markets, with India's rupee cartwheeling to historic lows.

Wednesday's minutes from the last Fed meeting could offer fresh hints on when the U.S. central bank will start winding down its $85 billion-a-month support program, a tricky process markets have been nervous about for months.

German 10-year government bond yields rose 1.3 basis points to 1.89 percent, having hit their highest since March 2012 at 1.924 percent at the open.

Their U.S. counterparts hit fresh two-year highs of 2.871 percent, though the move was not tracked by the dollar, which traded little changed against its currency basket. .DXY

"What you are seeing at the moment in a way is central bankers versus the markets," said ABN Amro economist Nick Kounis.

"The markets are pushing up the rate (increase) expectations and central bankers have been trying to pour cold water on the moves, but it is proving more difficult against a background of stronger economic data."

The single currency area ended an 18-month recession last quarter, growing 0.3 percent, and August business surveys this week are likely to show the modest recovery is slowly broadening out.

As well as a further rise in the euro zone composite purchasing managers' index (PMI), economists expect readings for the area-wide service sector and for French manufacturing to have punched through the no-change mark of 50 to show growth.   Continued...

Visitors watch an electronic board showing Japan's Nikkei prices and related indexes at Tokyo Stock Exchange (TSE) in Tokyo April 24, 2013. REUTERS/Yuya Shino