Stock markets extended a global sell-off yesterday as traders appeared increasingly nervous about the prospect of Britain voting to leave the European Union next week.
Investors, meanwhile, for the first time accepted negative returns for the privilege of owning rock-solid German government bonds as fears of a possible Brexit and economic worries caused a rush to the safety of German debt.
Strong demand for German sovereign bonds, known as Bunds, caused prices to peak, in turn pushing their yields into negative territory for the first time ever.
“The nervousness around the Brexit story increased the volatility in global bond markets,” said Ipek Ozkardeskaya, market analyst at traders London Capital Group.
In a bid to seek safety, traders are also piling into the yen and gold, or alternative haven investments.
Yesterday, the euro hit a 3.5-year low at 118.52 yen.
Caution across markets was reinforced by policy meetings of the US, Japanese and British central banks taking place this week.
The US Federal Reserve will conclude a two-day meeting today and while it is not expected to hike interest rates for several months, investors hope it will give some guidance on monetary policy.
Wall Street followed the main indexes in Asia and Europe downward but gained support from a slightly better-than-expected report on US retail sales in May.
Opinion is divided on whether the bank of Japan will add to its stimulus when it finishes its own gathering tomorrow, while the same day the bank of England is widely expected to hold rates at 0.5%.
“Expectations of weak global growth and ever-enduring easy monetary policy, likely to be reinforced at central bank meetings this week, is seeing a mass exit from equities and feeding demand for bonds, sending yields to record lows,” said Jasper Lawler, analyst at traders CMC markets.
London’s FTSE 100 was down 2% at 5,923.53 points at close yesterday. Europe’s main stock markets were sharply down, with Paris’ CAC 40 more than two per cent lower, closely followed by London’s benchmark FTSE 100 index and the DAX in Frankfurt.
Elsewhere on currency markets, the British pound dropped against the dollar and was largely steady versus the euro after British newspaper urged readers to vote to leave the European Union in an editorial yesterday.
On Monday, the pound had hit two-month lows against the dollar and European single currency.
With just over a week to go until Britain’s referendum, a series of polls have put the ‘Leave’ camp in front, raising the possibility that its four-decade ties to the bloc could be cut.
The prospect of one of the biggest economies in the EU breaking away has led to warnings of a new wave of world market turmoil as they struggle to recover from the panic that wiped trillions off valuations at the start of the year.
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