Treasuries Halt Losing Streak as Clock Ticks Down to Brexit Vote

  • Four-day drop to Tuesday was longest run of losses since April
  • ‘Yellen remains cautious as a theme,’ says CRT Capital

Flight to Safety Likely Initial Brexit Reaction: Higgins

Treasuries halted a four-day decline, the longest stretch since April, with just one day left until the U.K. votes on whether to leave or remain in the European Union.

Benchmark 10-year note yields retreated from a two-week high as different polls put either side ahead before Thursday’s referendum. Treasuries fell Wednesday after Federal Reserve Chair Janet Yellen said the central bank is watching for whether, rather than when, the U.S. economy would show clear signs of improvement.

“Whether the result is to leave or stay, I don’t think the yield curve will steepen further,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management, which oversees the equivalent of $9.6 billion. “The U.S. economy is slowing and inflation is still low,” and if the Fed raises rates this year it will do so only once, he said.

Treasury 10-year yields fell one basis point, or 0.01 percentage point, to 1.69 percent as of 6:43 a.m. in New York, according to Bloomberg Bond Trader Data. The yield climbed to 1.71 percent Tuesday, the highest level since June 8. The 1.625 percent security due in May 2026 rose 1/8, or $1.25 per $1,000 face amount, to 99 3/8.

Bond market sentiment globally has swung with so-called Brexit polls in recent weeks. The benchmark Treasury yield climbed from an almost four-year low of 1.52 percent reached June 16 after the killing of pro-“Remain” lawmaker Jo Cox.

Yellen Remarks

“We’ve been biased for a continued grind toward higher yields if for no other reason than simply following the momentum, but that has its limits ahead of the vote,” strategists David Ader and Ian Lyngen wrote in note for CRT Capital Group LLC Tuesday. “Yellen remains cautious as a theme.”

Yellen reiterated in the first of two days of her congressional testimony Tuesday that a vote to leave the EU could have “significant economic repercussions,” even as she warned against exaggerating its global impact.

She had said on June 15 that Brexit risks played a part in the Federal Open Market Committee’s decision to hold off from raising interest rates.

Futures indicate 49 percent odds that the Fed will tighten policy this year, down from 76 percent probability at the start of the month.

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