“The low yield on government bonds paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance”, said Hargreaves Lansdown analyst Laith Khalaf. While the German DAX Index has tumbled by 2.2 percent, the French CAC 40 Index is down by 2 percent and the U.K.’s FTSE 100 Index is down by 1.8 percent.
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Near 10:41 a.m. ET, the Dow was down 73 points (0.41%), the S&P 500 was down 9 points (0.44%) and the Nasdaq was down 19 points (0.39%).
Wall Street was expected to see a subdued restart with the momentum that had appeared to be taking the S&P 500 .SPX back to all-time highs earlier in the week sapped all of a sudden as Europe .FTEU3 fell nearly 2 percent, its biggest drop in a month.
USA stocks traded lower Friday, as gains in telecommunications offset pressure from further pullback in oil prices and declines in benchmark global yields.
Money was placed in highly-rated bonds instead – with the United Kingdom and German 10-year yields at new record lows.
MSCI world index down 0.4 percent, off recent highs * Kiwi hits one-year high after RBNZ leaves rates unchanged * US crude falls from 11-mth high, gold also eases By Anirban Nag LONDON, June 9 (Reuters) – Global stocks retreated on Thursday, dragged down by lower European and Japanese equity markets, as appetite for riskier assets faltered, underpinning demand for safe-haven German Bunds whose yields hit record lows.
Bond buying by the European Central Bank has been one of the key drivers of lower yields.
And should central banks reverse their current low-rate policies, investors in bond markets would be vulnerable to sharp losses.
The poor alternatives are driving banks and brokers at the center of operations to consider taking radical steps, though perhaps mostly in protest at a negative interest rate policy which hurts their prospects.
German bonds with a maturity out to nine years have a yield below zero and the average yield of German bonds in circulation turned negative for the first time this week.
“An increasing number of people and investors understand this is a very, very important event, not just for the United Kingdom but also for Europe”, said Markus Stadlmann, chief investment officer at Lloyds Private Bank. Oil prices got better.
“If you look at it in terms of growth expectations and in particular inflation expectations, they are probably more modest than they were a year ago”, said Orlando Green, European fixed income strategist at Credit Agricole (Swiss: ACA.SW – news). Investors bidding through primary dealers, known as indirect bidders, bought 73.6 percent of the securities at Wednesday’s $20 billion 10-year note auction, the most ever based on Treasury Department data going back to 2003. Even in the USA, though, some traders in the options market have signaled concern that short-term US yields could fall below zero.
“In order to duplicate that number, yields would have to drop to -17 percent!”
Bank of Tokyo Mitsubishi UFJ said on Wednesday it was considering giving up its status as a primary dealer of Japanese government bonds, a previously sought-after role which placed it at the center of both trading and information in one of the world’s most important government bond markets.
A move below zero would see Germany join Japan and Switzerland in having negative yields for a decade or longer, and add to the existing pile of more than $2 trillion of such bonds in the euro area.
“The fact of the matter is, economies are not overheating”.
“We think the USA will continue to be an outlier in terms of real growth”, he said.
This amount of negative yields is pushing the world of investment into uncharted territory, raising alarm bells with some market watchers. “I think it can happen over this week”. “That could create some risk that could create strains in markets”.
After ending the previous session modestly lower, stocks have seen some further downside in early trading on Friday. Tipp said that June 23 vote is the nearest risk to markets.
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Dovish comments from European Central Bank president Mario Draghi, who last last week warned of subdued growth in emerging markets and slow progress in structural euro-zone reforms. Telling is the fact that United States yields keep slipping, as if in a flight to quality, while corporate spreads are narrowing.
