Record-low US Treasury yield points to rising economic fears
BONDS: Bond yields continued to trade near all-time lows as investors seek safety following Britain’s vote to leave the European Union.
The yield on the 10-year Treasury note slipped to 1.37 percent, slightly above an all-time low of 1.32 percent it reached earlier in the day. “(Investors) looked around the globe for the next safe thing, and despite the problems we have in this country – politically, and in terms of our budget – people view USA treasuries as the ultimate safe haven”, he said.
The market’s signal this time seems somewhat hazier than usual, and there’s far from any consensus among economists that a recession is approaching.
Equity markets in London, Paris, Frankfurt and Tokyo all lost more than one percent, while the British pound dived to a fresh 31-year low. Then the USA government issued an anemic May jobs report.
Asian share markets crept ahead on Thursday after upbeat US economic data took some of the sting out of the latest Brexit scare, while the Australian dollar briefly dipped as the country’s triple A credit rating came under threat.
FED MINUTES: The outlook for another US interest rate hiked dimmed further after the release of minutes from the USA central bank’s most recent meeting. The yield on Japanese 20-year government bonds dipped below zero for the first time.
Still, U.S.jobs data Thursday suggest it was premature to expect any rate cut by the Fed and the recalibration of the wagers drove investors to sell short-term Treasury debt.
All those factors have raised a host of questions: Are investors bracing for a global downturn?
In commodity markets, oil prices recouped some lost ground on the better USA data and expectations for a sharp drop in crude stockpiles.
Other market analysts detect newfound signs of caution.
“We’ve seen a tremendous rally pretty much every night in longer-term bonds” since the vote, said Tom di Galoma, managing director at Seaport Global Holdings.
“It’s probably safe to assume there will be bouts of continued fear going forward that could drive the yield down. even lower than where we’ve already been”, she said.
“Lower yields in the developed world reflect a lack of confidence over the global economy that has been running at a sluggish pace due to soft global demand for goods, stagnant wages and aging populations”, The Wall Street Journal said.
European shares were down 1.6 percent as weaker commodity stocks and ongoing worries about Italian banks that have seen their value drop almost 60 percent this year more than offset small rise for London’s FTSE on the back of Bank of England interest rate cut hints. The real estate firm Zillow reported 30-year fixed mortgage rates of around 3.40 percent Tuesday, near the all-time average weekly lows.
Economic growth had recovered just enough late previous year for the Fed to raise rates modestly.
“In other words, if you give the USA government your money, they actually give you something back”. This helps hold down inflation, because a stronger dollar makes imports less expensive.
Japan’s benchmark Nikkei 225 index slipped 0.2 percent to 15,343.37 as the yen strengthened, making the country’s exports costlier overseas.
According to traders, the 10-year yield still has room to fall and analysts say it wouldn’t surprise them if the 30-year yield falls below the 2% mark in the weeks ahead. “Brexit implies certain slowdown in growth in the United Kingdom that has a spillover effect to elsewhere”, said Matthias Rusinski, U.S. rates strategist at UBS in NY.
Information for this article was contributed by Marley Jay of The Associated Press and by Kevin Buckland and Lukanyo Mnyanda of Bloomberg News.