Yields on 10- and 30-year U.S. Treasuries fell to record lows, defying forecasters who for years have said they would rise, amid signs that Britain's vote to leave the European Union will curb global economic growth and prevent the Federal Reserve from raising interest rates this year.
The U.S. 30-year bond yield dropped as much as 10 basis points to an unprecedented 2.1873%, while benchmark 10-year yields touched 1.3784%. They joined a rally in bonds around the globe as some of the world's biggest investors, including BlackRock, Guggenheim Partners and Vanguard Group, said the Brexit vote means subdued growth and lower yields for years to come.
The rally extends a bull market for U.S. debt that began in the early 1980s, after 10-year and 30-year yields peaked above 15%. It comes as central banks abroad are experimenting with negative interest rates to spur their economies, pushing yields on almost $12 trillion of government bonds from Germany to Japan to Switzerland below zero and boosting the relative allure of Treasuries.
“The reason is simple: if you're facing negative interest rates on over 30% of government debt, you're going to go look for where you can get positive rates,” Mohamed El-Erian, the chief economic adviser at Allianz SE, said in an interview with Bloomberg Television. U.S. 10-year yields “can go to 1.25% quite easily if we continue to see this combination of more central bank activism and a slowdown in Europe.”
Benchmark Treasury 10-year note yields dropped three basis points to 1.44% at 2 p.m. EDT. They earlier fell below the all-time low of 1.379% reached on July 25, 2012, according to Bloomberg Bond Trader data.
U.S. 30-year yields fell to 2.23%, less than one basis point away from a record-low closing level. Trading in Treasuries closed at 2 p.m. Friday in New York.
Treasuries “are still relatively high yielding in comparison to the rest of the world, meaning they have more room to rally,” said Seamus Mac Gorain, London-based global fixed-income portfolio manager at J.P. Morgan Asset Management, which oversees about $1.7 trillion. He said 10-year yields may fall to 1.25% in the coming months.
With yields so low, bond buyers are leaving themselves little room for error.
“What you continue to see is the reach for yield, and I don't think that changes anytime soon,” said Gemma Wright-Casparius, who handles portfolio decisions and trading for more than $60 billion of U.S. government-debt portfolios for Vanguard. “In a slow-growth, low-inflation environment, people continue to extend along the curve.”
Among those investors calling for even lower rates: Scott Minerd, chief investment officer for Guggenheim Partners, sees yields on the benchmark securities plunging to 1% by the end of the year. So does Colin Robertson, who oversees $350 billion as head of fixed income in Chicago at Northern Trust Asset Management. He also says 30-year bond yields may drop to 1.65%.
Ms. Wright-Casparius at Vanguard said the 10-year notes will trade between 1.25% and 1.65%. Rick Rieder, BlackRock's chief investment officer of global fixed income, forecasts the same range.