Richard Turnill
June 20, 2016
Global Chief Investment Strategist

The global dynamic that’s pushing yields lower

Global bond yields continue their downward trend, a phenomenon that can be attributed, we believe, to two things: easy central bank policy and Brexit-induced risk aversion.

Central banks continue to hold rates low

The U.S. Federal Reserve (Fed) affirmed its dovish stance in its latest meeting this month, keeping U.S. rates on hold and downgrading expectations for the pace of rate normalization. Europe’s Central Bank (ECB) continues to buy bonds, pushing bond yields lower. The Bank of Japan (BoJ) is keeping its policy steady , though we expect further non-traditional tactics are likely. In the below chart, we can see the actions taken by central banks and the resulting effects: a drop in short-term yields around the globe.

cotw-6-20-16

Ten-year U.S. Treasurys are approaching the lows of 2012 and Germany has joined Japan with negative 10-year yields.

Brexit fears pushing investors to sidelines

Investors with their eyes to the June 23 British referendum, in which voters will decide whether the U.K. remains part of the European Union (EU), are in full risk-off mode. ETF flows show European equities lost $851 million; high yield saw outflows of $1.96 billion, according to Bloomberg data June 11 through June 16.

We believe the Brexit vote will continue to be top of mind this week, as polls point to a marginal lead for those on the “leave” side.

A look at what’s ahead

The Fed is balancing sustained consumption growth and rising inflation pressures against global growth risks and slowing employment growth. We believe we’ll see one or perhaps two Fed rate increases by the end of the year.

We don’t expect the ECB to change course, but we think perhaps there will be an extension of quantitative easing and bubbles in assets that are interest-rate sensitive. We think the BoJ will likely ease further in July or September, but may intervene earlier to stabilize the yen in the event of a Brexit.

We have upgraded U.S. Treasurys and fixed income overall to neutral, and remain cautious on risk assets pending the U.K. vote.

Read more market insights in my  Weekly Commentary .

 

Richard Turnill  is BlackRock’s global chief investment strategist. He is a regular contributor to  The Blog .

Investing involves risks, including possible loss of principal. There is no guarantee that stocks will continue to pay dividends. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of June 2016 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. ©2016 BlackRock, Inc. All rights reserved.  iSHARES   and   BLACKROCK  are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners.   USR-9571 http://hvst.co/28IzXry 
More from Richard Turnill
The most important insight of the day
Get the Harvest Daily Digest newsletter.