U.S. 10-year yield at two-year high, stocks rally

Fri Dec 27, 2013 11:09am EST
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By David Gaffen and Blaise Robinson

NEW YORK/PARIS (Reuters) - U.S. benchmark government bond yields rose above 3 percent, hitting a two-and-a-half year high on Friday, while major global equity markets extended gains to a seventh day in a broad year-end surge.

The U.S. 10-year Treasury note yield rose to a high of 3.02 percent, reflecting signs of improvement in the U.S. economy and expectations that the Federal Reserve will steadily withdraw stimulus that kept a lid on interest rates for several years.

The latest selloff will assure this will be one of the worst years ever for the Treasuries market, as the 10-year yield has risen 1.25 percentage points in 2013.

But stock markets took the bond selloff in stride. The MSCI World Index .MIDW00000PUS rose as much as 0.5 percent and has gained nearly 20 percent for the year.

"The stock market has clearly discounted what the Fed has said. This is a 'Santa Claus' rally," said Quincy Krosby, market strategist at Prudential Financial in Newark, which has $1 trillion in assets under management.

Turkey was again in the spotlight, with the lira hitting a record low and stocks falling to their weakest level in 17 months as a corruption scandal pitting the government against the judiciary took its toll on markets.

Wall Street was little changed after four days of gains for the benchmark S&P 500. Major U.S. averages have set records on a near-daily basis as investors absorb the rise in interest rates, a sign of growing confidence in improved economic demand.

The Dow Jones industrial average .DJI was down 12.62 points, or 0.08 percent, at 16,467.26. The Standard & Poor's 500 Index .SPX was down 1.11 points, or 0.06 percent, at 1,840.91. The Nasdaq Composite Index .IXIC was down 8.44 points, or 0.20 percent, at 4,158.74.   Continued...

People walk past an electronic information board at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth