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6/29/16

Global Economy: Better look at this if you think markets are over Brexit - Patti Domm

Stocks are sailing higher as Brexit worries fade, but the global bond market is signaling that there's plenty to fear.

Bonds have been on fire globally, as investors rush to snap up safety, particularly at the long end, and that is sending yields to new lows — and some yields even into the black hole of negative rates. The U.S. 30-year Treasury bond is closing in on its all-time low yield of 2.223 percent.

"I think people are hunkering down and buying bonds because of the uncertainty in the world. They want to be able to sleep at night," and Andrew Brenner, head of international fixed income at National Alliance. Brenner said in the U.S., 20-year corporates and 30-year Treasurys were the hot spots in Wednesday's market.

While investors may be frustrated by the low yields, consumers are the winners, with mortgages and a whole host of loans heading lower.

Bond yields move inversely to prices, and that market was trading at rich levels well before the Brexit vote. Investors globally have been responding to yields driven lower by central bank buying and easy policies, such as the negative rates set by central banks in Europe and Japan.

At the same time, investors worry about the strength of the global economy and the fact that central bank easing has been unable to jump-start growth. But the U.K. vote to leave the European Union has driven a new belief that global interest rates will now stay lower for much longer than was previously expected.             

Read more: Better look at this if you think markets are over Brexit

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