Fed minutes, PMIs prompt investors to dump safe-haven Bunds
LONDON, Aug 22 (Reuters) - German yields hit their highest since March 2012 on Thursday as investors sold Bunds after forecast-beating euro zone business activity data and on persistent concern the Federal Reserve would soon slow its stimulus.
Surveys showed business activity in the currency bloc picked up this month at a faster pace than expected, led by Germany as it benefited from growing demand for its exports.
The data was not enough to lift lower-rated euro zone government debt, which fell along with other riskier assets in emerging markets.
Germany's private sector expanded in August at its fastest rate since January, giving further momentum to the recent rise in German borrowing costs.
"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 1.937 percent, up 5 basis points on the day.
German Bund futures fell 55 ticks to 139.59.
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.
"At the end of the day 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 weakness in emerging markets was seeping through into lower-rated debt, which fell across the board. Several emerging currencies hit multi-year or record lows on Thursday.
Ten-year Spanish yields rose 3.7 basis points to 4.57 percent and the Italian equivalent rose 4.3 bps to 4.40 percent. Riskier Portuguese and Greek debt underperformed with their 10-year yields rising 10 bps and 12 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."