Bonds tumble, dollar climbs

NEW YORK (CNNMoney.com) -- Bond prices tumbled Thursday after the European Central Bank hiked rates, raising the specter for higher interest rates worldwide.

The dollar surged against the yen as worries about the yen carry trade - when investors borrow yen at low interest rates and use the funds to buy higher-yielding assets in other currencies - eased.

The benchmark 10-year note lost 6/32, or $1.87 on a $1,000 note, to yield 4.52 percent, up from 4.49 percent late Wednesday.

The 30-year bond sank 14/32, or $4.37 on a $1,000 bond, to yield 4.67 percent, up from 4.63 percent the previous session. Bond prices and yields move in opposite directions.

The five-year note lost 3/32 to yield 4.46 percent, while the two-year declined 2/32 to yield 4.57 percent.

The European Central Bank raised a key interest rate to 3.75 percent, the highest since November 2001.

In the policy statement accompanying the move, the ECB said that it would keep watching inflation closely.

Although the rate hike was widely expected, it rattled some investors worried about rising rates around the world.

Higher interest rates hurt bonds since they erode the value of the fixed-interest paying investments.

On the currency front, the dollar bounced back against the yen. The dollar bought ¥117.19, up from ¥115.82 the previous session.

The Japanese currency had climbed over the past week as rising awareness of risk led some investors to unwind the yen carry trade.

But some of those worries have eased amid a recovery in global stock markets.

The dollar also gained versus the euro, which bought $1.3134, down from $1.3172 late Wednesday.

-- from staff and wire reports

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