U.K. bonds are closing the first half with a 12 percent gain, more than double what Treasuries have returned, on concern Britain’s decision to leave the European Union will drive the nation into recession.
The extra yield 10-year Treasuries offer over same-maturity gilts widened to 57 basis points Wednesday, the biggest difference since December 2000.
Yields plunged globally this year on speculation a Brexit vote would curb the economic expansion and make it tougher for the U.S., Europe and Japan to raise their inflation rates. Government bond yields point to slower growth and more dovish central banks, Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg View columnist, wrote on Twitter Wednesday.
“The flight to quality will continue for the rest of the year,” said Lee Junhyeok, a bond investor at Mirae Asset Securities Co. in Seoul, which oversees $7.8 billion. “The global economy will weaken further. I’m quite bullish” on bonds, he said.
Treasury 10-year yields were little changed at 1.51 percent as of 12:29 p.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in May 2026 was 101 1/32.
Ten-year gilts yielded 0.95 percent, after the figure fell to a record low of 0.93 percent earlier this week.
Rate Bets
Traders abandoned bets for the Federal Reserve to raise interest rates after the Brexit vote. The odds of an increase in 2016 are 12 percent and less than 50 percent for 2017, futures contracts indicate.
A U.S. inflation gauge watched by the Fed rose 0.9 percent in May from the year before, the government reported Wednesday. It has been below the central bank’s 2 percent target for four years. Thursday’s data will include initial jobless claims and Chicago-area business activity.
Morgan Stanley economists said this week the chance of a global recession starting in the next 12 months is 40 percent, raising the figure from 30 percent. The company is one of the 23 primary dealers that trade directly with the Fed.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Tomoko Yamazaki, Jonathan Annells
©2016 Bloomberg L.P.
