* U.S. 10-year bond yield above 3 percent
* World equities markets rally; U.S., Germany at records
* Turkey's lira hits record low as political crisis deepens
* Yen hits 5-year low; euro rises to 2-year high at $1.3892
By David Gaffen
NEW YORK, Dec 27 U.S. benchmark government bond
yields topped 3 percent on Friday, hitting a two-and-a-half year
high, while major global equity markets extended gains to a
seventh day in a broad year-end surge.
The yield on the U.S. 10-year Treasury note 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 yield, which moves inversely to the price of
the bond, was lately trading at 2.99 percent.
The latest selloff will assure this will be one of the worst
years ever for the Treasuries market, with the 10-year yield
rising 1.25 percentage points in 2013.
"As long as it happens slowly, it's not threatening for
other markets. What markets don't want is a sharp move in either
direction," said Quincy Krosby, market strategist at Prudential
Financial in Newark, New Jersey, which has $1 trillion in assets
Stock markets took the bond selloff in stride. The MSCI
World Index rose 0.4 percent, reaching a gain of
nearly 20 percent for the year.
"The stock market has clearly discounted what the Fed has
said. This is a 'Santa Claus' rally," said Krosby.
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 a toll on markets.
Wall Street was little changed after four days of gains for
the benchmark S&P 500. Major U.S. stock indexes 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 fell 10.14 points or
0.06 percent, to 16,469.74, the S&P 500 lost 1.29 points
or 0.07 percent, to 1,840.73 and the Nasdaq Composite
dropped 9.741 points or 0.23 percent, to 4,157.439.
Strength in equities was evident around the world. In
addition to the United States, which is on track for its best
year since 1997, Japan's Nikkei stock average is up more
than 55 percent so far in 2013, its best annual performance
since 1972, driven by that country's aggressive fiscal and
"The market feels unstoppable right now with growth coming
back, inflation under control and central banks ultra
supportive. My main worry is to what extent this is priced into
the market already," said Lex van Dam, hedge fund manager at
Germany's DAX gained 0.8 percent on Friday to hit a
record, with the index up nearly 26 percent in 2013, following a
29 percent gain in 2012.
Emerging markets have been a noted exception to the equity
rally in 2013, with the MSCI EM Index down 5.5 percent
EURO UP ON YEAR-END POSITIONING
Japan's low-yielding yen extended losses, hitting 105
to the dollar for the first time in five years and a five-year
low against the euro, hurt by the renewed appetite
for risk. Against the dollar it traded at 105.04.
The euro climbed against the dollar, hitting a peak of
$1.3894 according to EBS, the highest since October
2011. It ticked back to about $1.3777, still up 0.6 percent on
Though the euro zone's economic recovery is seen as
sluggish, the currency has been underpinned by European banks'
repatriation of assets, as well as buying by exporters as the
region's current account surplus has increased sharply.
The European Central Bank will take a snapshot of the
capital positions of the region's banks at the end of 2013,
which it will use in conducting an asset-quality review, or AQR,
next year to work out which of them will need fresh funds.
This has led to some demand for euros from banks to help
shore up their balance sheets, traders said.
"There's a lot of attention on the AQR, and there's some
positioning ahead of the end of the calendar year," said John
Hardy, FX strategist at Danske Bank in Copenhagen.
London copper rose to its highest level in four
months, with signs of economic revival in Asia and the United
States burnishing the demand outlook for metals.
Gold rose to $1,213 in thin holiday trade, but was on
track for its biggest annual loss in three decades.
Brent crude oil was up 0.5 percent at $112.45 a
barrel on Friday. U.S. light sweet crude rose 1.1 percent
to $100.68 a barrel.