As Brexit fears spark unease, government bonds shine

Source: CNBC

Uncertainty over whether the U.K. will stay in the European Union is sparking volatility across financial markets. A beneficiary of the tumult: Haven government bonds.
Yields on government bonds perceived to be safe have plummeted in the run up to the June 23 vote.
Bond prices and yields move in opposite directions.
The latest trigger? Two new polls out of England that showed the Brexit camp is gaining momentum.
An ORB poll for the Telegraph showed 48 percent of Britons would vote to remain in the European Union, while 49 percent would vote to leave.
A YouGov poll for the Times of London showed 46 percent preferred to leave, while 39 percent wanted to remain. Popular British newspaper The Sun also endorsed the leave vote for the upcoming referendum vote on June 23.


"We don't know what is happening with Brexit," said Gareth Nicholson, an investment manager at Aberdeen Asset Management Asia. "The thing we can agree on is that the market volatility is going to increase...the volatility is not good for the broader markets, and that's why you see weakness in foreign exchange and equity."

The CBOE Volatility Index, widely considered the best gauge of fear in the market, spiked above 21 for the first time since Feb. 25 on Monday while major equity indexes sold off.

The British pound traded at $1.4163 against the dollar Tuesday afternoon Asia time, compared to levels around $1.4600 in late May.

As investors scurried out of riskier assets, they have found comfort in bonds. To be sure, expectations of interest rates staying lower for longer have also supported bonds.

The 10-year Treasury yield was near 1.61 percent on Monday afternoon local time, around its lowest since Feb. 11. The German 10-year Bund yield remained near zero; the yield on the 10-year British government bond, known as the gilt, hit a record low at 1.211 percent on Monday.

Moves in some bond markets have been even more extreme. The 10-year Japanese government bond yield was at a record low of minus 0.163 percent on Tuesday afternoon.

A negative yield implies investors are paying borrowers for the privilege of parking their cash.