8.3.16 | Record Low Yields – Rusty Tweed team
The just completed month of July 2016 had the lowest closing yield on the 10-year Treasury note (1.36%) and the 30-year Treasury bond (2.10%) in history, both occurring on Friday 7/08/16 (source: Treasury Department).
Global government bond yields have declined steeply since the U.K.’s vote in late June to leave the European Union.
Bond expert Jim Vogel of FTN Financial says that yields could fall even further to 1.25%.
30-Year U.S. Treasury Bonds Selling at Record Highs
Despite being at their lowest yield ever, in mid July, the U.S. sold $12 billion of 30-year Treasury bonds. Foreign investors bought bonds at a record high rate. Amid a significant number of negative yielding government bonds in Europe and Japan, global investors are seeking refuge in U.S. government bonds.
Yields in the developed world have hit record lows following the UK’s Brexit vote to exit the European Union in late June. The U.S. 30 year bond offers the highest yield in the U.S. Treasury market, and significantly more attractive yields compared with overseas equivalents. The U.S. government benefits as it borrows cheaply to finance the budget deficit.
The 30-year Treasury Bonds were sold at a yield of 2.172%. January 2015 saw a previous low of 2.43%.
Jon Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, New Jersey, said, investors are willing to accept low yields because there is a lot of uncertainty. He added, the U.S. Treasury Bond market is “still the No. 1 place to be if you want safety and positive income”.
Worldwide Bonds Following Brexit
According to Bank of America Merrill Lynch, there is now $13 trillion of global negative-yielding debt. Before the Brexit vote, this figure was $11 trillion. In mid-2014, almost no government bonds had a negative yield.
In July, Germany sold 10-year bonds at a yield of -0.05%. If their price increases in secondary markets, investors can still make a profit on these bonds; however, given the zero coupon, they won’t receive any annual interest payment.
Other countries with negative yielding bonds include Switzerland and Japan.