Global bond rally sends Japan yield towards record on stock rout

Pedestrians stand in front of a stock market indicator board in Tokyo on Jan 13, 2016.
Pedestrians stand in front of a stock market indicator board in Tokyo on Jan 13, 2016.PHOTO: EPA

SINGAPORE (BLOOMBERG) - A worldwide bond rally sent yields tumbling to levels not seen in eight months, and Japan's benchmark approached a record low, as investors sought the relative safety of government debt while stocks tumbled.

The yield on the Bloomberg Global Developed Sovereign Bond Index dropped to 0.93 per cent on Wednesday (Jan 13), the least since April. Securities in the gauge have returned 1 per cent in 2016. The MSCI All Country World Index of shares fell 0.3 per cent on Thursday, leaving it down 7.2 per cent this year. Japan's 10-year yield of 0.2 per cent was 1/2 basis point above the all-time low set almost a year ago.

"Money is going into safety boxes now," said Mr Kazuaki Oh'E, the head of fixed income at CIBC World Markets Japan Inc in Tokyo. "There's a flight to quality."

The 10-year US note yield declined three basis points to 2.06 per cent as of 10.40am in Tokyo, based on Bloomberg Bond Trader data. The price of the 2.25 per cent note due in November 2025 climbed 1/4, or US$2.50 per US$1,000 face amount, to 101 21/32.

Australia's 10-year yield fell as far as 2.68 per cent, the lowest level since November.

When China unexpectedly sent its currency lower last week, the move sparked concern that officials in the country  felt compelled to resort to emergency measures to spur the economy. Investors dumped stocks and snapped up bonds as a result.

The Standard & Poor's 500 Index slid 2.5 per cent on Wednesday to its lowest closing level since Sept 29.

"It's just escalating," said Mr Roger Bridges, the chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management Australia.