Sovereign bonds, which had fallen out of favour ever since Donald Trump’s shock election win, have had a fresh leash of life.
Bond yields fell across the board with 10-year benchmark Treasury bond rates slipping to the lowest in a month as turmoil surrounding Donald Trump’s administration triggered a rush to safe assets. Bond yields move inversely to price.
Many of the trades sparked by the president’s November election have reversed as investors fret that the rolling crisis in Washington threatens to derail the administration’s policy agenda, which helped push global equities to a record high just this Tuesday.
“There are a lot of questions, a lot of speculation and a lot of noise about the US political scene and investors and traders do what know best in these times and rush for portfolio protection,” Chris Weston, the chief market analyst at IG said. “The moves in financial markets have been brutal, not because of the absolute size of the move, but specifically because of the size of the move after a prolonged period of such subdued implied volatility.”
The yield on 10-year US Treasuries stood at 2.236%, a level last seen just after data in April showed a weaker-than-expected jobs gain and surprise monthly drop in consumer prices. That slashed expectations for a rate hike by the US central bank.
After that the sentiment changed and investors piled back on to risky assets. That was until news broke that the Trump administration facing scrutiny about whether the president asked the former head of the FBI to drop an investigation, alongside questions about his handling of secret intelligence.
The Justice Department has now named a special counsel to oversee the FBI’s investigation of Russia’s efforts to influence the 2016 election.
Traders have once again reduced their wagers on a Federal Reserve rate increase next month.
Bonds from Australia to Japan also gained on the back the Treasuries rally.
The Aussie 10-year rate stood at 2.48%, close to a one month low. Ten-year Japanese government bonds rate stood at 0.035%, nearly its lowest in a week.
The bond revival is part of a flight to haven assets such as gold and the Japanese yen, a currency that investors turn to in times of distress. A gauge of US stock volatility surged the most since the UK’s shock vote to leave the European Union last June.
Gold had its biggest one-day rally since the the Brexit vote on Wednesday. The yen surged 2.1%, the most since November, in the previous session.