Treasury Yields Rise From Lowest Since 2012 as Haven Bid Fades

Updated on
  • Suspension of Brexit campaigns dims flight-to-quality demand
  • Ten-year notes post biggest three-week rally since February

Would Brexit Cause a ‘Massive’ Drop in Markets?

Benchmark Treasury yields rose from the lowest level since 2012 as the suspension of campaigning over whether Britain should remain in the European Union reduced demand for the safest fixed-income assets.

Ten-year U.S. notes posted their biggest three-week rally since February even as yields climbed Friday. Similar-maturity German bunds pulled back after yields on Europe’s benchmark sovereign securities sank below zero for the first time. Japanese 10-year government bonds halted a six-day gain, after yields fell to a record Thursday.

The probability that Britons would choose to leave the EU in the June 23 referendum dropped below 40 percent Friday, after exceeding 44 percent Thursday, according to Oddschecker’s survey of bookmakers’ implied probability. Bank of England policy makers on Thursday warned that a Brexit could undermine economic growth and employment. Campaigning was halted for a second day after the murder Thursday of Labour lawmaker Jo Cox.

"It’s an unwind of the flight-to-quality move," said Priya Misra, head of global interest-rates strategy in New York at TD Securities, one of the 23 primary dealers that trade with the Federal Reserve. "This week was largely about Brexit risks being priced in. The fact that campaigning has been suspended -- that’s making people feel the Brexit scenario is lower."

Yields Rise

Benchmark Treasury 10-year note yields rose three basis points, or 0.03 percentage point, to 1.61 percent as of 4:59 p.m. in New York, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 was 100 5/32. The yield fell to 1.52 percent Thursday, the lowest since August 2012.

Ten-year yields fell for a third straight week, by a cumulative 24 basis points, for the biggest three-week plunge since February, data compiled by Bloomberg show.

“The halt in campaigning may just take Brexit off the headlines momentarily, and that may have given an opportunity to just see a little bit of a retracement in a comparatively quieter environment,” said Orlando Green, a rates strategist at Credit Agricole SA’s corporate and investment-banking unit in London.

Fed officials meeting this week signaled the pace of rate increases will be slower than they previously predicted. Futures show less than a 40 percent probability the central bank will tighten policy this year, down from 76 percent at the start of the month.

Demand for the safest fixed-income assets surged this week amid concern that the global economy was stalling, combined with surveys showing campaigners for a British exit from the EU were pulling ahead.

The BOE said Thursday the referendum was the “largest immediate risk facing U.K. financial markets.” Fed Chair Janet Yellen said the vote was a factor in the central bank’s decision this week to keep interest rates on hold.