Government bond yields for several counties in the eurozone fell on Friday to their lowest ever in recorded history.
Advertisement
The yield on Germany’s 10-year government bond fell below zero for the first time on Tuesday, a symbolic milestone that highlights the huge influence on markets of central bank stimulus policies as well as investors’ growing concerns about the global economy.
“Our bonds have been negative a long time in a real sense, but not in a nominal one”, Max Wolff, chief economist at Manhattan Venture Partners, said Tuesday on “Trading Nation”. While most in the market expect an easing in July, some traders said the sharp yen gains could force the central bank’s hand this week.
In addition to safe-haven bids for the yen, the dollar has been dragged lower against its Japanese counterpart as prospects of the Fed raising rates this month have been dashed by soft US data, notably the much weaker-than-expected May non-farm payrolls report.
But faced with Brexit concerns, investors are once again ignoring his warnings and disregarding the fact that bond yields are already unreasonably low.
The Australian bond market is flat, despite a global risk-off tone ahead of a USA rate call and the UK’s Brexit vote.
Such fears have even spread to bond markets, as the interest rate on 10-year bonds issued by the German government fell below zero for the first time.
Of the two big decisions – the Fed rate rise timing is the lesser of the two evils, so to speak. Ultimately we would not be surprise to see yields move lower still and may target -0.15%, a level now seen for 10-year Japanese government bonds, ‘ he said. You buy bonds, the price goes up and hence the yield comes down.
Indexes: The U.K’s FTSE 100 UKX, -1.31% slipped 1.1% to 5,979.09 Germany’s DAX 30 DAX, -0.81% lost 1.2% at 9,546.71, and France’s CAC 40 PX1, -1.50% shed 1.3% at 4,172.28.
More than 10 trillion dollars worth of sovereign debt was yielding a negative return at the end of May, according to the Fitch ratings agency. The U.S. Treasury 10-year note yield dropped to a four-month trough on Tuesday in light of the ongoing global flight-to-quality.
Frederik Ducrozet, an analyst at asset manager Pictet said the current situation was likely to continue “at least until the Brexit referendum” but that “it could quickly turn around”.
“Markets are becoming increasingly convinced that developed nations may be less able to create inflation even if they want to”, said Neela Gollapudi, the head of portfolio management and research at Gentrust Wealth Management, which oversees $1 billion. Poor jobs data in the USA for May added to the anxiety.
“There was also contagion from lower U.S. rates since the publication of the latest report on the United States jobs market”, he added.
Advertisement
The pan-European index on Monday dropped 1.1% to 326.80, for the weakest close since February 25, FactSet data showed. This could help investors gauge whether a rate increase in September or December is among policy makers’ plans. The so-called negative deposit rate is now minus 0.4 per cent.
