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By Bloomberg

East European currencies and sovereign bonds tumbled for a second day amid a global debt sell-off driven by intensifying expectations for U.S. rate increases.

The forint dropped close to a two-month low and the zloty fell to the weakest in six weeks against the euro. The Romanian leu also slipped, while local-currency bonds in the three nations declined, with Polish 10-year yields rising to a seven- month high.

Bonds plunged globally on increasing bets the Federal Reserve will soon raise rates for the first time since 2006. San Francisco Fed President John Williams reiterated Monday that policy makers may act at any meeting after employment reports showed signs of recovery from a harsh winter. The New York Fed’s William C. Dudley said Tuesday “several” important emerging- market economies were vulnerable to higher U.S. rates, according to remarks prepared for a panel discussion in Zurich.

“There’s just one driver of the bond sell-off in the region: the gradual slump in U.S. bonds on the back of expectations for rate increases,” Lukasz Witkowski, who manages 6.2 billion zloty ($1.7 billion) in bonds at Warsaw-based mutual fund PKO TFI SA, said by e-mail on Tuesday. “The process of rates normalization is moving forward and bond investors are afraid.”

The forint lost 0.4 percent to 306.07 per euro, close to a two-month low of 307.61 reached last week. The zloty was down 0.2 percent by 1pm in Warsaw after falling as much as 0.7 percent to break above 4.10 for the first time since March. The leu lost 0.4 percent, while the Czech koruna was little changed.

The yield on Poland’s 10-year zloty government bond surged nine basis points to 2.88 percent, increasing the spread over similar-maturity German bonds to 218 basis points, 20 basis points below an 11-month high reached last month. The rate on Hungary’s 10-year bond rose seven basis points to 3.81 percent.