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German 10-year yield hits record low in global shift to safety

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Germany’s benchmark medium-term government bond yield has struck the lowest level on record while global stocks have taken a blow after Donald Trump’s threat to hit Mexico with tariffs deepened concerns over world trade.

The 10-year Bund yield fell as much as 1.6 basis points (0.016 percentage points) to minus 0.192 per cent in morning dealings in Europe. The yield, which moves in the opposite direction to the price, now sits at the lowest level on records that stretch back to the reunification in 1990, according to Bloomberg data.

Friday’s rally in German debt has sent the yield below the previous trough hit in 2016, not long after the European Central Bank launched its vast bond-buying programme.

US Treasuries, which like Bunds are seen by investors as essentially risk-free, have also rallied sharply this month. The 10-year yield fell 3.7 bps on Friday to 2.1766 per cent, the lowest level since the autumn of 2017.

Other perceived havens, such as the Japanese yen and gold, also advanced on Friday. At the same time, major equities bourses in Europe and Asia dropped.

The continent-wide Europe Stoxx 600 index declined more than 1 per cent, reflecting falls in Germany, France and the UK. Japan’s Nikkei 225 slumped by 1 per cent. Futures tracking Wall Street’s S&P 500 index fell 1 per cent.

Shares in European automotive companies and parts supplies — seen as particularly sensitive to global trade — faced particularly heavy falls.

Market participants said Donald Trump’s threat overnight to hit Mexico with tariffs added to the sense of concern over global trade.

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“Sometimes you have to reconsider everything you ever considered a certainty. Today is such an occasion,” said Ulrich Leuchtmann, an analyst at Commerzbank.

Mr Leuchtmann said Mr Trump’s assertion that tariffs will be applied beginning in June suggests the North American free trade pact negotiated by the US government with Mexico and Canada “isn’t worth the paper it is printed on.”

Mexico’s currency, the peso, tumbled 2.7 per cent from levels recorded on Thursday afternoon in New York, the largest slide since October 2018, Refinitiv data show.

The US president’s bid to pressure Mexico on immigration using tariffs echoes manoeuvres used in negotiations with others such as China and the EU. The deepening trade and technology dispute between the US and China — the world’s two biggest economies — has particularly unnerved investors.

Chris Turner, strategist at ING, said the Mexico decision was “another step in the escalation of trade wars”

In a sign of the broad, global shift into highly rated debt, yield on the Barclays aggregate index tracking $53tn of investment grade bonds hit this week levels last seen at the start of 2018.

Stock markets meanwhile have come under pressure. MSCI’s measure of equities in developed and emerging markets has dropped 5.7 per cent in May, the steepest decline since the sell-off at the end of last year.

Concern over global trade have also been accompanied by gloomy signs in some of the world’s largest economies.

A survey released earlier on Friday suggested China’s sprawling manufacturing sector contracted in May. Meanwhile, other surveys have pointed to subdued activity in Germany and France, the eurozone’s two biggest economies.

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Via Financial Times

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