Bonds fall with emerging markets

The Fed factor dominated global markets Monday, battering bonds and most developing-nation currencies.

Emerging-market currencies headed toward the worst month since August and gold fell for a ninth day in its longest losing streak in a year. Mexican dollar bonds slipped, following a tumble in Treasury 10- year futures and German bunds after U. S. Federal Reserve chair Janet Yellen said an interest- rate increase is likely in coming months. Mexican and Brazilian stocks swung between gains and losses, also repeating a pattern seen earlier in the day in Europe. Trading volumes in the Americas and Europe were less than half the daily average amid market closures in the U.S. and U.K.

The Bloomberg Dollar Spot Index was poised for its biggest monthly jump since September 2014, having surged as Fed Funds futures showed the odds of a U.S. interest-rate hike by the end of July more than doubled to 59 per cent.

Yellen said Friday that an improving American economy would probably warrant another increase in borrowing costs “in the coming months,” a view also expressed by several regional Fed chiefs in recent weeks.

“The Fed continues to set the tone, preparing the market for an eventual rate hike,” said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil. “Job data this week will be determinant for investors to have a clear path and be able to position themselves. People are adjusting bets on when that will happen and trying to take some profits in a slow day such as today.”

The yield on Mexico’s government bonds due 2024 in pesos rose three basis points to 6.01 per cent, and German 10- year bunds fell, with yields rising three basis points to 0.17 per cent, erasing their three- basis point drop in the previous week. Yields on similarmaturity French bonds rose three basis points to 0.5 per cent.

The MSCI Emerging Markets Currency Index declined 0.3 per cent and is down three per cent in May.

The euro gained after a report showed economic confidence in the 19- nation currency bloc rose for a second month in May to a four- month high.