June 28, 2017 / 9:24 AM / 22 days ago

EMERGING MARKETS-Emerging assets retreat as German, U.S. bond yields rise

5 Min Read

LONDON, June 28 (Reuters) - Emerging stocks retreated on Wednesday, taking their cue from Wall Street losses amid rising U.S. and German bond yields and expectations that the Fed and ECB will soon cut back on stimulus.

European Central Bank chief Mario Draghi has signalled that a stimulus reduction could get underway as soon as September, while the U.S. Federal Reserve has kept a hawkish stance on interest rates despite a recent run of soft inflation data.

The 10-year German yield has almost doubled in the past two days, boosting the euro against the dollar, while U.S. yields are at two-week highs.

The U.S. S&P 500 posted its biggest one-day fall in almost six months, the losses filtering through to Asia where markets slipped about 0.5 percent .

MSCI's benchmark emerging equity index fell 0.8 percent .

"It's a combination of Draghi and the Yellen comments – Draghi pushing up U.S. Treasury yields and Mrs Yellen highlighting stretched risky asset prices," said Simon Quijano-Evans, a strategist at L&G Investment Management.

He was referring to comments by Fed chair Janet Yellen who said on Tuesday that rates would rise gradually and that "some asset valuations look high".

The German bond sell-off will likely take a toll on eastern European debt markets, with Polish yields rising to one-month highs.

Quijano-Evans said the main impact could be on the Czech crown, by bringing forward the timing of the first rate rise. The central bank is expected to hold rates near zero on Thursday but a Reuters poll found the first rise could come this year instead of previous expectations of 2018.

The crown rose slightly against the euro.

While euro gains pushed the dollar index 0.2 percent lower, most emerging currencies were flat, although the rouble pulled back 0.3 percent, hit by renewed oil weakness.

Russian equities slipped 0.2 percent with shares in embattled conglomerate Sistema down another 0.3 percent, following falls of 7 percent and 6 percent respectively on Monday and Tuesday .

A court on Tuesday froze more than $3 billion of Sistema assets as it started hearing a lawsuit brought by state oil firm Rosneft .

In the Gulf, the Qatari riyal rose in forward markets versus the dollar to trade as firm as 3.686, the strongest level since mid-June. One-month forwards jumped back to levels seen at the start of the month, when a diplomatic spat with its neighbours first erupted.

For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see)

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1008.80 -7.88 -0.78 +16.99

Czech Rep 974.80 -1.20 -0.12 +5.77

Poland 2337.77 -7.28 -0.31 +20.01

Hungary 35527.17 -118.60 -0.33 +11.01

Romania 8173.00 -31.71 -0.39 +15.36

Greece 825.01 +2.24 +0.27 +28.18

Russia 992.77 -11.02 -1.10 -13.85

South Africa 45210.67 -77.71 -0.17 +2.98

Turkey 99899.79 +261.14 +0.26 +27.85

China 3173.90 -17.29 -0.54 +2.26

India 30818.32 -139.93 -0.45 +15.74

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 26.29 26.32 +0.09 +2.72

Poland 4.23 4.24 +0.21 +4.14

Hungary 309.79 309.71 -0.03 -0.31

Romania 4.55 4.56 +0.17 -0.42

Serbia 121.00 121.10 +0.08 +1.94

Russia 59.50 59.40 -0.16 +2.97

Kazakhstan 323.75 322.06 -0.52 +3.06

Ukraine 26.07 26.07 +0.00 +3.57

South Africa 13.00 13.03 +0.22 +5.65

Kenya 103.60 103.60 +0.00 -1.19

Israel 3.52 3.52 -0.12 +9.37

Turkey 3.52 3.52 +0.09 +0.14

China 6.80 6.81 +0.16 +2.12

India 64.57 64.47 -0.15 +5.23

Brazil 3.31 3.31 -0.02 -1.81

Mexico 18.00 17.99 -0.06 +15.08

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 324 -1 .02 7 88.48 1

All data taken from Reuters at 08:56 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Additional reporting by Claire Milhench; Editing by Toby Chopra)

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