Treasury yields jumped to the highest level since 2011 amid swelling speculation the Federal Reserve will trim its bond purchases next month. Emerging markets led losses in stocks and industrial metals slid, while U.S. shares were poised for their first four-day slump of 2013.
Ten-year Treasury yield increased five basis points to 2.88% and yielded 40 basis points more than bonds in an index of debt from the Group of Seven nations, the highest since May 2010. The MSCI Emerging Markets Index sank 1.6% as India’s rupee dropped to a record against the dollar. The Standard & Poor’s 500 declined 0.6% to 1,646.06, the lowest level since July 8. Italy and Greece led Europe government bonds lower. Corn and soybeans surged more than 3%, while copper slid 1.3%.
U.S. central bankers and policy makers gather this week in Jackson Hole, Wyoming, to discuss the global economy and monetary policy and minutes of the Federal Open Market Committee’s July meeting will be released on Aug. 21. Slowing economic growth in countries from India to Indonesia is driving investors to pull funds from emerging markets, spurred by speculation the Fed will taper its stimulus program.
“Every little uptick is met with sellers,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the central bank. “There’s more of a feeling tapering is going to happen in September.”
Officials will probably begin to scale back their $85 billion in monthly asset purchases in their program of quantitative easing next month, according to 65% of economists surveyed by Bloomberg from Aug. 9-13. The first step may be reducing purchases by $10 billion a month, according to the median estimate of analysts.
Yields on 10-year Treasury notes will rise above 3% as the Fed scales back its debt purchases, according to Rick Rieder, chief investment officer for fundamental fixed-income at BlackRock Inc.
The Fed’s quantitative easing “is too big,” Rieder said in an interview with Tom Keene and Sara Eisen on Bloomberg Television. “You have got to taper down QE. It has created this tremendous distortion in interest rates. We think fair value on the 10-year is close to 3-to-3.25%. You are getting very close to there.”
The yield on 10-year Treasury note extended last week’s 25 basis-point increase. Italy’s 10-year bond yield climbed 10 basis points to 4.28% and rates on Spanish, Swedish, Dutch and U.K. debt of similar maturity increased more than four basis points.