U.K. Corporate Bonds Rally as Brexit Concern Saps Risk Appetite

U.K. corporate bond yields fell to the lowest in more than a year as investors sought safer assets on concern the nation will leave the European Union.

The average yield on sterling-denominated investment-grade corporate notes fell below 3 percent for the first time since April last year, according to Bank of America Merrill Lynch index data on Friday. The yields move in lock-step with government-bond rates, which fell to records.

“Corporate bonds are priced on gilts and that is why their yield is coming down,” Paola Binns, a portfolio manager at Royal London Asset Management Ltd., which oversees about 84 billion pounds. “When the market feels there is a lot of risk, the asset that does well is government bonds because of a flight to quality.”

Anxiety over the prospect of a U.K. exit from the EU is weighing on European stocks and 
the pound, boosting demand for haven assets. Weekend polls that showed the outcome of the June 23 in-out referendum is too close to call sent 10-year gilts higher, pushing yields down to 1.196 percent, while the FTSE 100 Index slid to a three-week low.

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