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U.S. government borrowing is accelerating inflation expectations, making investments priced in foreign currencies more attractive. The best-performing geographically focused funds outperformed all other categories for the week ending yesterday.

The yield on 10-year U.S. government bonds rose to 3.75% yesterday, a six-month high. Even investors in so-called "risk-free" securities want to be compensated for the potential loss in value of the U.S. dollar due to inflation.

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The best-performing geographically focused fund this week is the Templeton Russia and East European Fund ( TRF), gaining 14%. While flat for the week, the Russian ruble has been strengthening against the dollar for the past 3 1/2 months and is now at its strongest level since Jan. 9.

Sberbank, one of the fund's biggest holdings, rose 13%. As the largest holder of ruble deposits, Sberbank is helped by a rising ruble, giving confidence to Russian depositors to leave their money in the bank and not convert it to other currencies.

Mechel ( MTL) jumped 26% after the Russian steel producer got an extension of a bridge loan to finance an acquisition and the restart of a shaft furnace at its Southern Urals Nickel Plant, which added 15% to capacity utilization. Vimpel-Communications ( VIP) soared 20% on reporting lower-than-expected losses and a 20% increase in wireless subscribers compared with a year earlier.

India's rupee has been on a three-month rally against the U.S. dollar, bringing it to its strongest level since December 2008. The India Fund ( IFN) spiked 13%, continuing a climb that tracks, in part, the advancing rupee.

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