Global Bond Yields Fall as Central Banks Consider Further Rate Cuts

Global bond yields fall as fears about global growth persist about Brexit vote.
By Lisa Botter ,

More investors are lining up to pay the government to borrow money from them as they clamor for so-called safe haven government bonds since the U.K. voted to leave the European Union a week ago.

Today, yields 10-year U.S. Treasuries, U.K. government and Japanese government bonds hit record lows. A bond yield moves inversely to the price.

This morning, the 10-year Treasury fell 10 basis points to hit a record low of 1.378%.

The 10-year U.K. government bond yield, also known as a gilt, fell 6 basis points to 0.808%.

And in Japan, the 10-year JGB yield fell to a record low of minus 0.245% on the expectation that the Bank of Japan will decide to ease monetary policy further as early as July.

Fears that the U.K. will slip into a recession is forcing many investors into safe haven assets. Yesterday, Bank of England Governor Mark Carney hinted that the bank would cut rates soon.

He said in his second speech in a week, "In my view, and I am not pre-judging the views of the other independent Monetary Policy Committee members, the economic outlook has deteriorated and some monetary policy easy will likely be required over the summer."

Carney added there are a range of potential easing options and it is not just about the bank rate. The interest rate currently sits at 0.5%.

He said, "If we decide to provide stimulus, it'll be the best stimulus for the economy."

Earlier this week, President Barack Obama said that Brexit posed a threat to global growth. Speaking at a press conference in Ottawa, Canada, following a summit with the leaders of Canada and Mexico, Obama said, "There are some genuine longer term concerns for global growth if in fact Brexit goes through."

Bank of America Merrill Lynch credit derivative strategist Ioannis Angelakis said that the decline in bond yields is reflective of the higher possibility of more rate cuts by central banks. "In our view, another round of rate cuts could signal higher risk of central banks losing the battle against inflation and growth," he told the Financial Times.

Meanwhile, yields on the eurozone's peripheral debt including Spanish and Italian bonds, have been rising today. Bond yields fell yesterday after a Bloomberg report suggested that the European Central Bank would widen the pool of assets used in its bond buying program due to the Brexit vote.

The ECB would not comment on this, but it is expected to announce further easing measures in response to the market turmoil caused by the referendum.

The ECB currently buys government bonds and non-bank investment grade corporate credit that yield more than the deposit rate of minus 0.4%.

Swiss 10-year bonds were trading at minus 0.66% and for the first time on Friday the government's 50-year bond fell into negative territory.

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