Global bond yields fall to new lows

Global bond yields dropped to new lows and perceived safe-haven currencies gained as investors fled to the safety of bonds on concerns about Britain's referendum on European Union membership on June 23rd.

“There are a number of different factors driving yields lower and it started last week with the weak US jobs data pushing rate-hike expectations back,” said Patrick Jacq, European rate strategist at BNP Paribas. “For the euro zone, this was the only constraining factor for lower yields.”

Japan's 10-year government bond yields dropped to a record low, rattling investors who were already cautious ahead of policy decisions from the US Federal Reserve and Bank of Japan next week. The 10-year government bond yield slipped to minus 0.150 per cent, close to the record low of minus 0.155 per cent seen earlier in the session.

The German 10-year Bund yield hit a record low of 0.023 per cent on Thursday, and was last trading at 0.038 per cent. The 10-year British gilt yield struck an all-time low of 1.222 per cent on Thursday. The start of the European Central Bank’s corporate bond purchase programme also bolstered European bonds. The 10-year US Treasuries yield broke out of the trading range it has been in since March to hit a 3-1/2-month low of 1.659 per cent on Thursday. It last stood at 1.6782 percent.

Equities

Asian shares pulled back on Friday as investors sought refuge in safe-haven assets. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.8 percent, but remains poised for a weekly gain of 1.4 percent. Japan's Nikkei closed 0.4 percent lower, extending losses for the week to 0.25 percent. Hong Kong's Hang Seng index slipped 0.7 percent, heading for a gain of 1 percent for the week. China is closed for a holiday.

Commodities

The retreat in risk sentiment is proving a boon for gold, which is hovering near a three-week high, and on track for a second straight weekly rise. Spot gold pulled back 0.3 per cent on Friday to $1,264.93 an ounce, after climbing as high as $1,271.31 overnight. It’s up 1.7 per cent for the week.

Currencies

In the currency market, the decline in US unemployment benefit claims and weakness in other currencies supported the dollar index, which tracks the greenback against a basket of six peers. The index advanced 0.3 per cent, extending gains for the week to 0.2 per cent. The Swiss franc has gained 1.6 per cent over the past five days, its biggest five-day gain since March 2015, hitting an eight-week high of 1.0886 franc per euro on Thursday. It last stood at 1.08955, on track for a weekly increase of 1.8 per cent. The low-yielding yen, which tends to be bought back when risk appetite suffers, stood at 107.07 per dollar, clinging near five-week highs of 106.26 set on Thursday, but remains down 0.5 per cent for the week. The euro eased to $1.1295 from a four-week high of $1.1416 set on Thursday, but is poised for a weekly decline of 0.6 per cent. The British pound slipped 0.1 per cent to $1.4444, having slipped from this week’s high of $1.4664 touched on Tuesday, and heading for a drop of 0.5 per cent this week. Although it has stayed 4.5 per cent above its seven-year low set in late February, investors are actively seeking protection against a slide in the event of Brexit. The cost of hedging against swings in sterling’s exchange rate over the next month soared, with sterling’s one-month implied volatility hitting its highest in more than seven years.

Oil prices also stepped back after notching another 2016 high. Still, persistent threats by militants against Nigeria’s oil industry and fear of more security incidents that could hit supply limited losses in crude. Global benchmark Brent crude futures slipped 0.7 per cent to $51.60 per barrel, after having risen to as high as $52.86 on Thursday, and looks set to record a 4 per cent gain for the week. US crude also slid 0.7 per cent to $50.18 a barrel, poised to end the week 3.2 per cent higher.

Reuters