German Bonds Fall Below Zero as Global Markets Slump
The jittery mixture of concerned investors awaiting the Federal Reserve’s latest decision on interest rates, plus the global financial market's continued worries about Britain’s vote on whether to leave the European Union, have forced the U.S. markets to move lower for a second day this week.
By Paolo Palazzi-Xirinachs
Tuesday, June 14, 2016 - 00:00
Near midday EST, the Dow Jones Industrial fell 0.52%, and the S&P 500-stock was down 0.48%. The Nasdaq composite index also slipped 0.52%. In a typical flight to safety reaction, U.S. bond yields continued their steep fall as investors sought safety. The yield on the 10-year Treasury note fell to 1.60% from 1.61% the day before, trading at yields not seen since 2012. In Europe, benchmark German government bond yields fell below zero percent for the first time in history, a sign that skittish investors were willing to pay to park their money in investments they considered super-safe.
The U.S. Federal Reserve's two-day meeting began today, with a decision on interest rates to be announced on Wednesday. The Fed was originally expected to raise interest rates, but now appears likely to wait and see how economic changes develop. Last month, many investors were betting that the Fed would raise rates, but the most recent monthly jobs reports were weaker than expected, and expectations have since fallen.
Britain’s referendum on EU membership has emerged as this week’s main focus even as central banks in the U.S., Japan and the U.K. hold policy meetings. Sovereign bond yields and measures of expected volatility are evidence that investors see the possibility of Brexit posing an increasing risk to the world economy. Five polls put the “Leave” campaign ahead of “Remain” when votes decide June 23. Britain’s best-selling newspaper, The Sun, has backed an out vote. In other economic news this morning, data today showed U.S. retail sales rose more than forecast in May.
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