Global stocks fall, Bund yields go negative on Brexit fears

Tue Jun 14, 2016 4:46pm EDT
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By Herbert Lash

NEW YORK (Reuters) - Safe-haven German Bund yields fell below zero on Tuesday for the first time and global equity markets slid for a fourth day in a row on intensifying worries about a potential British exit from the European Union next week.

Polls and bookmakers' odds showed an increasing likelihood that Britons would vote to exit the European Union in the June 23 referendum. Britain's largest tabloid newspaper, the Sun, also said it was backing a "Leave" vote.

"The market is really afraid of the uncertainty of what the outcome will actually be," said Tony Bedikian, head of global markets at Citizens Bank in Boston, referring to Brexit.

The 10-year Bund yield DE10YT=TWEB fell as low as minus 0.032 percent, which effectively means investors are paying to lend money to the German government for a full decade.

U.S. 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 began on Tuesday.

Fed funds futures show investors see almost no chance of the Fed raising U.S. interest rates on Wednesday after the dismal U.S. payrolls report for May. Odds also have drifted toward zero as polls have shown the increasing likelihood of a Brexit.

Britain's departure from the EU would increase the risk to global growth, further weigh on the euro and strengthen the dollar, said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co Inc in Boston. That would tighten financial conditions and likely prompt the Fed to reconsider rate hikes, he added.

MSCI's all-country world stock index .MIWD00000PUS fell 1.2 percent while European shares fell for a fifth straight session. The pan-European FTSEurofirst 300 index .FTEU3 closed down 1.89 percent at 1,260.14, a three-month low.   Continued...

Traders observe a moment of silence before the opening bell to honor the victims of the shooting at the Pulse night club in Orlando, Florida, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 13, 2016.  REUTERS/Brendan McDermid