Pound and US Treasury Yields Hit Record Low Over Brexit Fears

UK property funds halt trading to prevent investors from cashing out
July 5, 2016 Updated: July 5, 2016

Financial turmoil intensified on July 5 in the wake of the U.K.’s Brexit vote. The pound fell to a record low and yields on top tier sovereign bonds plunged further as investors continue to worry about the British financial system.

The British pound touched $1.30, a 31-year low. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, hit a record of 1.368 percent. The yield has dropped 37 basis points since the U.K. voted to leave the European Union.

Three U.K. asset managers announced they would freeze trading some of their property funds to prevent investors from withdrawing money after the Brexit vote sparked a series of redemptions. Investors then proceeded to sell off other risk assets as well. 

The British pound touches a record low after property funds suspend trading. (Bloomberg)
The British pound touches a record low after property funds suspend trading. (Bloomberg)

Standard Life, announced on June 4 it won’t allow retail investors to withdraw funds from its 2.9 billion pounds ($3.8 billion) commercial fund, one of the largest U.K. property funds.  On June 5, Aviva and M&G Investments have also halted redemptions for their property funds.

“Investor redemptions in the Fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum,” M&G stated in a press release.

“Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension of trading.”

Gold rose more than $18 on July 5. (Bloomberg)
Gold rose more than $18 on July 5. (Bloomberg)

Switzerland’s 50-year bond yield fell below zero for the first time while the 10-year Treasury yield fell below 1.38 percent. The yield on 10-year U.K. gilts was down 4 basis points, near last week’s record low of 0.776 percent. The Japanese government 10-year bond yield was -0.248 percent and the 10-year German Bunds were at -0.159 percent.

Investors looking for safe investments once again rushed to gold. The price of gold rose $18.5 to 1,357 per ounce. And silver surged to a two-year high.

The Bank of England’s Financial Stability Report published on July 5 has also indicated a challenging outlook for the U.K.

“There will be a period of uncertainty and adjustment following the result of the referendum,” stated the report.

“It will take time for the United Kingdom to establish new relationships with the European Union and the rest of the world. Some market and economic volatility is to be expected as this process unfolds.”

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