LONDON: Germany's yields hit their highest since mid-October on Friday as an upward revision to US growth numbers reinforced expectations the Federal Reserve will steadily pursue stimulus withdrawal following this week's small cut. Gross domestic product grew at a 4.1 percent annual rate instead of the 3.6 percent pace reported earlier this month, the Commerce Department said in its third estimate on Friday.
The Fed's decision to taper - although tempered by a tweak in the forward guidance - is historically significant because it is the first step towards the unwinding the stimulus which helped keep the financial system afloat during years of crises.
"The fact that they have announced tapering does give the market a reason to push yields higher and that's what we are likely to see certainly over the medium-to-long term," Credit Agricole European fixed income strategist Orlando Green said. "(The data) is in line with what the Fed has been saying that the economy is on a more secure path to a sustainable recovery."
Ten-year German yields rose to their highest since mid October at 1.906 percent. They last stood up 2.4 basis points at 1.90 percent.
Five-year German yields also hit their highest since mid-October at 0.91 percent.
The five-year paper underperformed other German debt, tracking weakness in that part of the US Treasury curve, with some analysts saying it is vulnerable because it is not covered by the timeframe implied by the Fed's forward guidance. The US central bank said it was likely to keep interest rates near zero well past the time that the jobless rate falls below 6.5 percent, especially if inflation expectations remain below target.
That revised an earlier pledge to keep them steady at least until the jobless rate hits that level.
Futures traders are betting the Federal Reserve will wait until September 2015 before raising interest rates.
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