Global Yields Fall to Record as U.S. Jobs, Brexit to Hamper Fed

Weak Jobs Data Means Only One 2016 Fed Hike, Says French
  • Yield on developed-nation bonds falls to 0.62% on haven demand
  • Treasury demand will persist, Samsung Asset Management says

Global bond yields tumbled to a record after the U.S. reported a weaker-than-expected May jobs gain and as polls showed more Britons favor leaving the European Union.

The yield on the Bloomberg Global Developed Sovereign Bond Index dropped to 0.62 percent at the end of last week, the least in data going back to 2010. Australian 10-year yields fell to an all-time low of 2.15 percent. Japan’s slid to minus 0.125 percent, approaching the record of minus 0.135 percent. Treasuries fell for the first time in five days Monday after yields declined the most in four months on Friday.

Investors are seeking the relative safety of bonds as central banks struggle to spur economic growth and inflation. Policy makers in Europe and Japan are pursuing record stimulus programs, and traders are scaling back forecasts for when the Federal Reserve will raise interest rates. Chair Janet Yellen is scheduled to speak at 12:30 p.m Monday in Philadelphia.

“The probability of a hike in June has decreased,” said Wontark Doh, the head of overseas fixed-income investment in Seoul at Samsung Asset Management Co., which oversees $200 billion. “Treasuries rallied. Demand will persist. That has an effect on all other countries.”

Skipped Holiday

Doh said Monday he went in to his office in Seoul even though it was a holiday in South Korea. Samsung Asset had purchased U.S. Treasuries and corporate bonds before the employment report, and he went to work to decide if any changes to his position were needed. Won decided to wait for Yellen’s speech before making any changes.

Benchmark U.S. 10-year note yields rose two basis points, or 0.02 percentage point, to 1.72 percent as of 7 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 dropped 5/32, or $1.56 per $1,000 face amount, to 99 5/32. The yield fell 10 basis points on Friday, the biggest decline since Feb. 2.

Yields are moving opposite to what economist expected. A Bloomberg survey at the end of last year projected the figure would rise to 2.55 percent by June 30, based on the median forecast among 62 respondents.

Traders see a 4 percent chance the Fed will raise rates by its June 14-15 meeting, down from 30 percent odds a week ago, futures contracts indicate. The probability tumbled after the Labor Department reported Friday the U.S. economy added 38,000 jobs in May, versus 160,000 projected by a Bloomberg survey. 

Traders found more reason to seek safety as the British pound tumbled after a poll for ITV’s Good Morning Britain program found 45 percent would choose ‘Leave,’ compared with 41 percent picking ‘Remain.’ A separate survey by TNS research company showed 43 percent for ‘Leave’ and 41 percent for ‘Remain.’ The U.K. referendum on EU membership is scheduled for June 23.

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