Bond yields jump, stocks rise on signs of economic improvement

Thu Sep 5, 2013 11:13am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. and European government bond yields jumped on Thursday, with the yield on U.S. 10-year Treasury notes rising to the highest in more than 25 months, as economic data supported the view the Federal Reserve might reduce its bond purchases this month.

U.S. stocks opened higher and were on track for a third day of gains on the data, which showed improving U.S. economic conditions. Growth in the U.S. services sector accelerated in August to its fastest pace in almost eight years.

The data, which follows an upbeat U.S. manufacturing report from Tuesday, could bolster expectations the Fed will begin winding down a bond-buying stimulus program this month.

"(It's) enough to reinforce expectations that the Fed will begin to taper its asset purchases," said Paul Ashworth, an economist at Capital Economics in Toronto.

Central banks have attempted to talk down expectations of any rate rises, and left loose policies unchanged, as data from China, Britain and the euro zone point to a global economic recovery gathering steam.

As widely expected, the European Central Bank, the Bank of Japan, Sweden's Riksbank, and the Bank of England all left policy unchanged on Thursday.

Benchmark 10-year Treasury notes last traded down 12/32 in price, yielding 2.941 percent, up 4.3 basis points from late on Wednesday. The 10-year yield rose to a session high of 2.958 percent, a level not seen since July 2011.

The rise dragged the German government 10 year Bund to a new 1-1/2 year high above 2 percent. British gilts also rose.   Continued...

A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett