German yields hit 1-1/2 year highs on improved data, Fed minutes
LONDON Aug 22 (Reuters) - German yields hit their highest since March 2012 on Thursday as investors sold low-risk Bunds after forecast-beating business activity data and on expectations the Federal Reserve would soon slow its stimulus.
Minutes of the Fed's July meeting on Wednesday could not shake bets that the central bank would start trimming monthly asset purchases from September, pushing U.S. Treasury yields higher and dragging top-rated peers German Bunds with them.
The rise in yields at the start of the session accelerated after 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.
Ten-year German yields rose as high as 1.943 percent. They closed 4 basis points up at 1.92 percent.
"The Fed minutes were interpreted as increasing the likelihood of the September taper," Investec chief economist Philip Shaw said. "It is now largely priced in, but it is always difficult to judge (to what extent)."
That difficulty made it hard for analysts to predict how far Bund yields might rise.
German debt is also seen as a safe haven. Just before the Fed minutes were released, a swift emerging market sell-off caused by the Fed's outlook shocked some investors which sought refuge in Bunds, briefly reversing the yield rise.
Key decisions in the euro zone are also drawing near and could be the source of renewed tensions in the bloc.
The Italian parliament will decide whether to evict Silvio Berlusconi from parliament over a tax fraud conviction, a decision which could break up the country's ruling coalition.
The German election at the end of September will pave the way for a more applied debate on whether to give Greece a third bailout or whether Portugal needs further help once its current aid programme comes to an end next year.
"Any decision could have big implications which are hard to predict," Shaw said.
German Bund futures fell as low as 139.46, their lowest since October 2012 when they fell as low as 139.45. The fact that Bunds could not break new lows turned 139.45 into a strong technical support level, chartists said.
Commerzbank rate strategist Rainer 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 promise 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.
Money market rates have risen to levels seen before the July meeting when the ECB introduced its unprecedented forward guidance, raising questions about the effectiveness of its policy.
"(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.