Bonds Jump Globally as Bank of England Eases Policy Post-Brexit

BOE's Carney: Brexit Changed the Economic Outlook
  • Treasuries join rally after BOE announces asset purchases
  • Investors await release of U.S. monthly jobs report Friday

Bonds jumped globally after the Bank of England cut interest rates in response to the U.K.’s decision to leave the European Union, reinforcing the trend for monetary easing worldwide.

Treasuries climbed with European securities after the BOE reduced its key rate for the first time in more than seven years and announced asset purchases and loans to ramp up defenses against a Brexit-induced slump. The moves sent the yield on U.K. gilts to a record low.

Six weeks after Britain’s vote to leave the EU sent shock waves across financial markets, policy makers led by BOE Governor Mark Carney slashed growth forecasts by the most ever. Sovereign bond yields from the U.S. to Europe to Japan fell to record lows last month amid concern that Brexit would curb global economic growth and keep the Federal Reserve from raising interest rates. Investors awaited Friday’s release of the U.S. monthly labor statistics to gauge the health of the world’s biggest economy.

"It’s a second-order effect, we’re being dragged around," said John Briggs, head of strategy for the Americas in Stamford, Connecticut, at RBS Securities Inc., one of the 23 primary dealers that trade with the Fed. "We may have more follow-through after payroll."

Global Yields

The U.S. 10-year note yield fell four basis points, or 0.04 percentage point, to 1.50 percent at 5 p.m. in New York, Bloomberg Bond Trader data show. The price of the 1.625 percent security due in May 2026 was 101 3/32. The yield fell to a record-low 1.32 percent in July.

Yield on German, Spanish and Italian 10-year bonds fell. The yield on similar-maturity gilts touched a record-low 0.632 percent.

The Labor Department’s monthly report due Friday will show U.S. employers added 180,000 jobs in July, according to the median forecast in a Bloomberg survey of economists, after gaining 287,000 jobs in June.

Almost all economists in a Bloomberg survey had forecast the BOE would cut its benchmark interest rate and most predicted other measures as well. Futures trading showed about a 47 percent chance that the European Central Bank will ease by year-end while wagers on a 2016 increase by the Fed have been cut to 37 percent from 59 percent two months ago.

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