Switzerland’s 10-year government bond yields fell to the lowest level since January as concern that China’s devaluation of the yuan will curb global growth boosted demand for the safest fixed-income securities.
Swiss bonds advanced for a second day, along with U.S. Treasuries and U.K. government bonds. At the same time, the franc strengthened from the weakest level since January versus the euro. In another sign of the rush for haven assets, the yield on Germany’s two-year notes fell to a record. European stocks had the steepest decline since October.
“It’s a flight to safety, it’s really that simple, off the back of what we’ve seen from China,” said Neil Mellor, a London-based senior currency strategist at the Bank of New York Mellon Corp. “We’re seeing the same with the two-year on the German debt market, that’s down to a new low.”
Swiss 10-year bond yields dropped two basis points, or 0.02 percentage point, to minus 0.18 percent at the 5 p.m. London close, the lowest end-of-day rate since Jan. 23. The price of the 1.5 percent bond due in July 2025 rose 0.26, or 2.60 francs per 1,000-franc ($1,032) face amount, to 116.895.
A negative yield means investors buying the securities now will get back less than they paid when the debt matures.
“Until we know just what Beijing has in mind, whether on the basis of concerted depreciation or a one-off as it has been saying, the market tolerance for risk will perhaps be a little tempered for the time being,” Mellor said.
The franc strengthened for the first time in seven days versus the euro on Wednesday, gaining 0.6 percent to 1.08487. It touched 1.09615 earlier, the weakest level since Jan. 15, the day the Swiss National Bank removed its four-year cap versus the common currency.
The Stoxx Europe 600 index of shares dropped 2.7 percent.