TOKYO - Japan’s 20-year government bond yield dropped past zero for the first time as ultra-low yields worldwide failed to deter investors from rushing to buy the safest assets.
Treasuries advanced for a fourth day as 10-year yields renewed a record low, with the fallout from the shock UK vote to leave the European Union clouding the outlook for global growth. Benchmark 10-year Japanese and Australian sovereign note yields also slid to unprecedented levels.
Almost $10 trillion of securities in the Bloomberg Global Developed Sovereign Bond Index yield less than zero, up from about $9 trillion a week ago, as growing concern about a UK recession and the effect on Europe add to lingering questions over China’s slowdown and the robustness of the US recovery.
Bond investors can also draw encouragement from signals by global central bankers that they stand ready to boost stimulus. The Bank of Japan and European Central Bank are already snapping up sovereign debt, amid speculation the Federal Reserve could return to doing the same.
"The downside risk for yields is in sharp focus, and the trend is showing no signs of letting up," said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo. The 30-year JGB yield may drop below zero as soon as this week, he said.
Records tumble
The 20-year Japanese bond yield fell to minus 0.005% before yielding 0.025% as of 7.17am in London, little changed from Tuesday, according to Japan Bond Trading Co. The 10-year note yielded minus 0.27% after dropping to a record minus 0.285%. The 30-year and 40-year yields reached unprecedented lows of 0.015% and 0.045%, respectively.
The yield on the 10-year Treasury note slipped one basis point to 1.36%, after declining to 1.3397% for the first time. The 30-year bond yield fell two basis points to 2.14%, after marking a new low of 2.1213%.
Australia’s 10-year yield was eight basis points lower at 1.87%, after earlier reaching an unprecedented 1.84%.
Three asset managers have frozen withdrawals from UK real-estate funds, helping drive the pound to a 31-year low against the dollar Wednesday. Commentators are scanning Europe for the next country to break ranks, floating terms like “Frexit” and “Quitaly.”
Abenomics undone
Central banks including the Fed and BOJ have stressed they’re watching for potential fallout in their own economies. The pressure is building for Japan’s central bank to add to stimulus, as an accelerating surge in the yen threatens to wipe out the effects of more than three years of monetary easing. In the US, fed fund futures signal just an 8% change of higher interest rates this year.
The average yield on securities in the Bloomberg Global Developed Sovereign Bond Index reached a record-low 0.4%.
"In the risk-off environment produced by international events, there is a global rush to buy super-longsovereign debt," said Hideo Suzuki, the chief manager of foreign exchange and financial products trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. "Bonds that still offer some yield are going to be most in demand."