Treasuries Decline as Britain Votes on European Union Referendum

  • U.S. 10-year notes follow German, French, U.K. debt lower
  • Global sovereign debt index has returned 4.9% this year

Treasuries fell, with the 10-year note yield touching the highest level in three weeks, as the U.K. voted on whether to remain in the European Union.

U.S. government securities resumed their slide after breaking a four-day losing streak Wednesday, when Treasury auctions totaling $46 billion attracted strong investor demand.

“I think the market jumped the gun,” said Gennadiy Goldberg, an interest-rate strategist at TD Securities LLC in New York, one of 23 primary dealers that trade with the Federal Reserve. “Today’s market move is what I would have expected from a ‘Remain’ win tomorrow.”

The safest government bonds are paring gains that earlier this month pushed yields from Japan to Switzerland to record lows amid concern that the U.K. would vote to leave the world’s largest trading bloc. Global sovereign bonds are on pace for the best first-half performance since 1995, with Bank of America Corp.’s Global Government Index returning 4.9 percent this year.

The benchmark Treasury 10-year note yield rose six basis points, or 0.06 percentage point, to 1.74 percent as of 4:50 p.m. New York time, according to Bloomberg Bond Trader data. It touched 1.75 percent, the highest since June 3. The price of the 1.625 percent security due in May 2026 was 98 29/32. 

U.S. 10-year yields dropped to 1.52 percent on June 16, the lowest since August 2012.

Fed on Hold

In recent weeks, global bond-market sentiment has swung along with polls on Britain’s referendum. Fed Chair Janet Yellen has said Brexit-related risk played into the central bank’s decision not to raise interest rates this month.

“We will be watching closely to see what the vote is and what possible repercussions it might have,” Yellen said Wednesday in response to questions from the House Financial Services Committee in Washington.

Traders assign about a 10 percent probability to a Fed rate increase in July and coin-flip odds to a hike this year, according to futures data compiled by Bloomberg.

Some investors say the Fed’s rate path may hinge on the outcome of the referendum.

“If the U.K. leaves, you can take Fed tightening off the table for July,” said Bob Michele, chief investment officer and head of global fixed income at JPMorgan Chase & Co., in an interview Wednesday. On the other hand, “if there’s a ‘Remain’ vote, and the markets remain somewhat orderly, and you get a respectable employment number in July, then I think they’re going to raise rates” at next month’s meeting, he said.

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