Government Bond Yields Hit Six-Month Highs; Stocks, Metals Fall

May 28 (Bloomberg) -- European and Japanese government bonds fell, after Treasuries had their biggest rout in four months yesterday, on concern central bank efforts to revive the global economy by driving down borrowing costs are failing.

Stocks slid, with the MSCI World Index losing 0.7 percent as of 11:07 a.m. in London. Oil and copper dropped. The yen had its biggest decline in eight weeks against the dollar. The gap between two-year and 10-year Treasuries narrowed to 272 basis points from a record 276 basis points yesterday.

Yields on German bunds rose four basis points to 3.67 percent, near the highest level in six months. The yield on Japanese 10-year bonds climbed as much as three basis points to 1.5 percent, also the highest in at least six months. Ten-year Treasury yields rose to the highest level since November yesterday amid speculation record U.S. debt sales will offset the Federal Reserve’s attempts to lower consumer interest rates by buying assets. Treasuries rebounded in European trading.

“If yields stay around these levels or move higher then the mortgage market, and financing in the economy, could easily start to choke off the recovery,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note today. “We will see who is more powerful, the markets or the Fed.”

The Dow Jones Stoxx 600 Index of European shares weakened for the first time this week, losing 1.1 percent as banks retreated, while the MSCI Asia Pacific Index fell 0.7 percent. The yen dropped 1.6 percent to 96.95 per dollar after a report showed growing demand for overseas assets among Japanese investors. Industrial metals declined on the London Metal Exchange, led by a 1.2 percent drop in copper and 1.1 percent retreat in tin.

Treasury Auction

The U.S. will sell $3.25 trillion of Treasuries in the fiscal year ending Sept. 30 to fund bank bailouts, stimulus spending and a record budget deficit, according to Goldman Sachs Group Inc. Today, the Treasury will auction $26 billion of seven-year notes.

Continued>>>
http://www.bloomberg.com/apps/news?pid=20601085&sid=a8DCbtJ2RFpo&refer=europe