Safe-haven German Bund yields fell below zero yesterday for the first time, and global equity markets slid for a fourth day running on rising worries about a potential British exit from the European Union.
Polls and bookmakers’ odds showed a growing chance a Brexit vote will prevail in the June 23 referendum. Britain’s largest tabloid newspaper, the Sun, also said it was backing a “Leave” vote.
The 10-year Bund yield fell as low as minus 0.032 per cent, which effectively means investors are paying to lend money to the German government for a full decade.
US Treasury yields fell to four-month lows on Brexit fears as investors pared lingering expectations the Federal Reserve would raise interest rates in coming months. A two-day meeting of the Federal Open Market Committee was set to began yesterday.
Fed funds futures show investors see almost no chance of the Fed raising US interest rates today after the dismal US payrolls report for May. Odds have drifted towards zero as polls have shown the increasing likelihood of a Brexit.
A Brexit would increase the risk to global growth and further weigh on the euro while strengthening the dollar, tightening financial conditions and likely prompting the Fed to reconsider rate hikes, said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co Inc in Boston.
MSCI’s all-country world stock index fell 1.12 per cent while European shares fell for a fifth straight session. The pan-European FTSEurofirst 300 index fell 1.8 per cent after earlier hitting a fresh three-month low.
On Wall Street, the Dow Jones industrial average fell 114.12 points, or 0.64 per cent, to 17,618.36. The S&P 500 slid 13.88 points, or 0.67 per cent, to 2,065.18 and the Nasdaq Composite lost 31.66 points, or 0.65 per cent, to 4,816.78.
Oil prices fell for a fourth straight day, swept lower by investor skittishness over Brexit. The referendum overshadowed signs of a return to health for crude markets after the International Energy Agency said the oil market is essentially balanced after two years of surpluses.
Brent crude oil futures fell 74 cents to $49.61 a barrel, while US crude futures lost 60 cents to $48.28 a barrel.
The dollar has risen about 1.5 per cent from its June lows against a basket of currencies, spurred by Brexit fears.
Volatility in the pound spiked to its highest in at least 20 years, rising beyond heights seen when US investment bank Lehman Brothers collapsed in late 2008. The yen surged to its strongest against the euro in more than three years.
The euro was down 1.02 per cent against the yen at 118.76, while the dollar slid 0.29 per cent to 105.93 yen .
The dollar trimmed losses against the yen slightly after a strong US retail sales report for May, though the data did little to increase the odds of a Fed rate hike in the summer.