Government bonds are rallying around the world on Oct. 14 as stocks resume their selloff and investors shift capital into safer asset classes.
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Stocks listed in Europe and Asia lost ground and U.S. stocks are down sharply as investors again weigh the potential fallout from renewed U.S.-China trade tensions. U.S. President Donald Trump has formally announced new 100% tariffs on Chinese goods effective Nov. 1. At the same time, Beijing tightened its export controls on critical rare earth mineral shipments to America.
News of the U.S. import duties on China has sent government bonds rallying across the globe, with the yield on the United Kingdom’s benchmark 10-year government bond, known as the gilt, losing eight basis points and the U.S. 10-year Treasury falling as much as three basis points. Yields on government bonds in France, Germany, Italy, Australia, and Japan also moved lower.
One basis point is equal to 0.01% and bond yields and prices move in opposite directions.
Geopolitical Uncertainty
Bond yields reflect borrowing costs for the governments who issue them and they can impact mortgage rates, investment returns, and the wider economy. Analysts say that, in addition to U.S.-China trade tensions, the bond market is also reacting to a rise in unemployment in the U.K., political instability in France, and the ongoing U.S. government shutdown.
Some economists are warning that sovereign bonds are likely to rally further amid a global flight to safety. Alongside bonds, gold, the Japanese yen, and the Swiss franc, each of which is viewed as a safe haven asset, are also moving higher. Prices for the precious metals gold and silver are at all-time highs. At the same time, prices for riskier assets such as stocks and cryptocurrencies are falling.
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