AFP, Paris :
Global investors are piling into sovereign bonds amid concerns about Brexit and sluggish growth, pushing rates of return close to zero and even into negative territory, creating an unprecedented situation with unknown consequences.
The yield or rate of return on the Bund, Germany’s 10-year government bond, hit 0.02 percent on Friday morning in trading on the secondary market.
“The historic moment” where it hits zero “doesn’t seem more than a question of time”, according to economists at German bank LBBW.
Interest rates on sovereign debt have been low for some time as central banks snap up government bonds from investors in an effort to boost economic growth through increased liquidity in a policy known as quantitative easing or QE.
The rate of return on Bunds first fell under 1.0 percent in 2014.
But be it in Japan, the United States, Switzerland or Britain, the rate of return for sovereign bonds of most major industrialised nations are striking new record lows on a daily basis on the the secondary market were investors trade debt after it is first issued.
Analysts say the onngoing downward push, which may yet take the Bund yield into negative territory, is the result of a renewed bout of jitters about the global economy.
“Three factors explain the plunge in bond yields: a speech by ECB chief Mario Draghi at the beginning of this week, risk aversion and increased market volatility ahead of the British referendum,” said Vincent Ganne, an analyst at FXCM currency brokerage.
“There was also contagion from lower US rates since the publication of the latest report on the US jobs market,” he added.
A dismal jobs report in the United States earlier this month raised questions about the recovery there and put an increase in interest rates on hold until the autumn, sending the yields on treasuries tumbling.
Recent Chinese economic data has also been lacklustre, and international institutions have been cutting their global growth forecasts.
Meanwhile the latest polls put the June 23 referendum vote on Britain leaving the European Union at a toss-up.
Investors abhor uncertainty, and in such situations often search out so-called haven investments perceived as offering security.
Global investors are piling into sovereign bonds amid concerns about Brexit and sluggish growth, pushing rates of return close to zero and even into negative territory, creating an unprecedented situation with unknown consequences.
The yield or rate of return on the Bund, Germany’s 10-year government bond, hit 0.02 percent on Friday morning in trading on the secondary market.
“The historic moment” where it hits zero “doesn’t seem more than a question of time”, according to economists at German bank LBBW.
Interest rates on sovereign debt have been low for some time as central banks snap up government bonds from investors in an effort to boost economic growth through increased liquidity in a policy known as quantitative easing or QE.
The rate of return on Bunds first fell under 1.0 percent in 2014.
But be it in Japan, the United States, Switzerland or Britain, the rate of return for sovereign bonds of most major industrialised nations are striking new record lows on a daily basis on the the secondary market were investors trade debt after it is first issued.
Analysts say the onngoing downward push, which may yet take the Bund yield into negative territory, is the result of a renewed bout of jitters about the global economy.
“Three factors explain the plunge in bond yields: a speech by ECB chief Mario Draghi at the beginning of this week, risk aversion and increased market volatility ahead of the British referendum,” said Vincent Ganne, an analyst at FXCM currency brokerage.
“There was also contagion from lower US rates since the publication of the latest report on the US jobs market,” he added.
A dismal jobs report in the United States earlier this month raised questions about the recovery there and put an increase in interest rates on hold until the autumn, sending the yields on treasuries tumbling.
Recent Chinese economic data has also been lacklustre, and international institutions have been cutting their global growth forecasts.
Meanwhile the latest polls put the June 23 referendum vote on Britain leaving the European Union at a toss-up.
Investors abhor uncertainty, and in such situations often search out so-called haven investments perceived as offering security.
