Among those feeling the worst pinch are pension funds and life insurance firms in Japan, Europe and the U.S. Those investors now face tougher competition for the high-grade, long-term bonds they need to match their long-term liabilities.
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MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5 percent while Japan’s Nikkei .N225 dropped nearly two percent. The Standard & Poor’s 500 index added 11.18 points, or 0.5 percent, to 2,099.73. The Nasdaq composite lost 39.67 points, or 0.8 percent, to 4,822.90.
A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery, driving prices higher and yields lower. Analysts said investors were buying into the perceived safety of USA government debt because of worries about global growth, the prospect of the Federal Reserve keeping US interest rates on hold through 2017 and yields on USA government bonds that were higher compared to those of other countries. The 20-year Japanese government bond yield TMBMKJP-20Y, -15.10%, which was above 1% as recently as last December, fell as low as minus 0.005% on Wednesday.
If anything, the Indian 10-year bond’s 10 basis point fall is among the lowest, which is also partly attributable to the limits imposed on foreign investor presence in this asset class.
Government bond yields around the globe fell, with Swiss yields negative all the way out to 50 years and British, German and Japanese 10-year yields at or near their lowest on record. In Germany, government debt with maturities out as far as January 2031 is trading with negative yields.
MELROSE’S PLACE: Nortek, which makes heating and ventilation systems for buildings, agreed to be acquired by Melrose Industries PLC for $86 per share, or $1.4 billion.
HANGING UP: Phone company stocks took the biggest losses.
There’s now about $12-trillion (U.S.) in negative-yielding sovereign debt in the developed world, according to an analysis of Bloomberg data, up from roughly $7.7-trillion in mid-March. Online retailer Amazon rose $7.26, or 1 percent, to $735.36 and used auto dealership CarMax gained $2.18, or 4.6 percent, to $49.94.
Gold XAU= also closed at a two-year high of $1,357.40 per ounce on Monday and last stood at $1,341.93.
MSCI (NYSE: MSCI – news) ‘s gauge of global stocks, which tracks markets in 45 countries, dropped 1.2 percent.
Meanwhile, the pound continued its decline and dropped to a fresh post-Brexit low of $1.2798 (http://www.marketwatch.com/story/pound-plunges-below-128-as-brexit-fears-push-investors-into-yen-2016-07-06).
The yen USDJPY, -0.63% rose to around 101 to the dollar in Wednesday afternoon Tokyo trading, up from around 102 yen to the dollar a day earlier. The euro slid to $1.1097 from $1.1125. GBP/USD bounced off 1.30 today but fundamental factors could drive sterling down another 3% to 5%.
Meanwhile, the United Kingdom government held its first government bond sale since the European Union referendum vote, ending the longest suspension of gilt sales since the financial crisis, according to the Financial Times. Mark Carney, the Bank of England governor, said that some of the risks to the economy predicted before the referendum had begun to crystalize, including the concern about the skyscrapers, shopping centers and other commercial real estate that have taken in capital from overseas and had become “stretched”.
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ENERGY: Oil prices were little changed, but gas prices sank after the USA government said stockpiles of gasoline jumped last week.
