Investors see even lower bond yields from Brexit fallout

Fri Jul 1, 2016 3:39pm EDT
 
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By Jennifer Ablan and Richard Leong

NEW YORK (Reuters) - Britain's vote to leave the European Union last week triggered a worldwide stampede into U.S., German, Japanese and even British government debt, sending their yields to historic lows. Some of the best-known bond investors and strategists see yields falling even further.

With fears that "Brexit" could cut business investments and consumer spending around the globe, they anticipate overseas central banks would embark on more stimulus and the Federal Reserve leaving U.S. interest rates alone well into 2017.

And with no signals that the flood of money going into U.S. Treasuries, German Bunds and other low-risk sovereign bonds would diminish anytime soon, it is not hard for the benchmark 10-year yield to dwindle to 1 percent.

"There's no natural boundary for yields on the low end, given considerable central bank accommodation - 1 percent 10-year Treasury is not out of the question," Dan Ivascyn, group chief investment officer of bond giant Pacific Investment Management Co, told Reuters.

Ivascyn helps oversee more than $1.5 trillion at Pimco in Newport Beach, California.

Betting on Treasuries has been profitable since a stunning weak May U.S. payrolls report released in early June.

The Bank of America/Merrill Lynch U.S. Treasury index earned 2.325 percent in total return in June. It was its best month since January 2015, beating a slim 0.26 percent return for S&P 500 stocks.

Through the first six months of 2016, Treasuries have returned 5.66 percent, outpacing the total return of 2.69 percent for the S&P.   Continued...

 
The union flag flies over the Houses of Parliament in Westminster, in central London, Britain June 24, 2016.     REUTERS/Phil Noble