German yields hit highest since March 2012 on PMI, Fed minutes
By Ana Nicolaci da Costa
LONDON Aug 22 (Reuters) - German yields hit their highest since March 2012 on Thursday as investors sold Bunds after forecast-beating business activity data and on concern the Federal Reserve would soon slow its stimulus.
Surveys showed business activity in the euro zone picked up this month more quickly than expected, led by Germany as it benefited from growing demand for its exports.
Germany's private sector expanded in August at its fastest rate since January, giving further momentum to the recent rise in German borrowing costs. Yields have been rising in line with those on U.S. Treasuries in anticipation the Fed will soon reduce its bond buying stimulus.
"To some extent it's helped by the fact that manufacturing PMI was a lot better than expected, but the real driver in the first instance is the weaker Treasury market finding new highs (in yields) overnight on the back of taper uncertainty," Marc Ostwald, strategist at Monument Securities said.
Ten-year German yields rose as high as 1.943 percent. They were up 5 basis points at 1.935 percent.
German Bund futures fell 58 ticks to 139.56.
"The market starts to look a little stretched at these levels but in the coming days there is little relief on the cards," Commerzbank strategist Rainer Guntermann said.
The much-anticipated minutes of the Fed's July monetary policy meeting provided few clues on the potential timing for a reduction in U.S. bond purchases
But 10-year U.S. yields hit fresh two-year highs as investors determined the Fed was still on track to "taper" its asset-buying programme soon, possibly next month.
"Whatever the timing is ... the Fed is gradually removing quantitative easing, which means that we are going to see higher rates in coming years," Patrick Jacq, European rate strategist at BNP Paribas, said.
Traders said there were signs weakness in emerging markets was seeping through into lower-rated debt. Several emerging currencies hit multi-year or record lows on Thursday.
Ten-year Spanish yields were all but flat at 4.54 percent and the Italian equivalent rose 1.2 basis points to 4.37 percent. Riskier Portuguese and Greek debt underperformed with their 10-year yields rising 16 bps and 11 bps respectively.
"The periphery sell-off is a function of what is happening in emerging markets," one trader said. "It (yield spreads) will probably widen more if volatility picks up."
Guntermann said the broad rise in euro zone government bond yields could pressure the European Central Bank to step up verbal intervention when it holds a monetary policy meeting on Sept 5.
The central bank's "forward guidance" that rates will stay low for a long period has struggled to cap a rise in yields, which some fear could derail the bloc's incipient recovery.
"(They may have to) use somewhat stronger words or if this is not sufficient then there could also be speculation about further action," Guntermann added.
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