Investors moved into safe retreats on Friday, pushing government bond yields and stock indices lower after shaky economic data from China added to worries over geopolitical tension in the Middle East.

The yield on benchmark 10-year German Bunds hit a record low of minus 0.27 per cent, moving deeper into negative territory to leave investors buying the debt and holding to maturity facing an even greater guaranteed loss. Yields fall when prices rise.

The yield on the 10-year US Treasury note — another asset prized for its safety — also hit a low for the day of 2.058 per cent, while stock markets stumbled and gold prices hit a 14-month high.

The nervy moves later moderated, after US retail sales and industrial production suggest the world’s most important economy may be more resilient than thought. But the broad search for safety is persistent; Bank of America Merril Lynch’s closely followed fund managers’ survey revealed that investors are seeking the safety of US government bonds on the biggest scale since the financial crisis.

Friday’s jitters deepened after the rate of growth in China’s industrial output hit a 17-year low in May, highlighting concern about the impact on global economic growth of the country’s trade dispute with the US.

Hopes were fading that a breakthrough in the dispute could occur around the G20 summit in Osaka at the end of the month, undermining the appeal of riskier assets.

“Investors do not view the G20 meeting as a watershed moment, with most expecting the can to be kicked down the road, rather than an agreement or escalation,” said Ralf Preusser, global head of rates research at Bank of America Merrill Lynch.

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The darkening mood came in the wake of Thursday’s attacks on oil tankers in the Gulf of Oman, which the US has blamed on Iran, heightening concerns over a potential clash between powers in the region.

Tullia Bucco, an economist at UniCredit, said activity in bond markets was “likely to be dominated by further safe haven bids”, in the run-up to an “exciting central bank calendar” next week, with a Federal Reserve rate call on Wednesday and the European Central Bank’s three-day forum in Sintra beginning on Monday.

Those meetings are likely to test investor sentiment on the recent tilt towards looser monetary policy by major central banks, that has helped stocks but also highlighted the troubled outlook for growth, pressuring bond yields.

On equities markets, the S&P 500 fell 0.3 per cent at the New York opening while Europe-wide Stoxx 600 was down 0.7 per cent. Technology stocks led the losses, with the index tracking the sector down 1.6 per cent. The Nasdaq fell 0.6 per cent in New York. The region’s chipmakers tend to be sensitive to the outlook for further international trade tariffs, which are thought likely to centre on technology.

Mainland China’s CSI 300 stock index swung 0.9 per cent lower, closing before the industrial output data were published.

Via Financial Times