The New York Stock Exchange
The New York Stock Exchange. Image Credit: Bloomberg

New York: Global bonds extended a rally, dragging long-term US yields to their lowest in more than a year, as investors sought safety amid economic and trade uncertainty.

The rate on US 30-year government debt has tumbled over the past month and touched 2.78 per cent Thursday, a level last seen at the start of 2018. The move came as escalating trade tensions between China and America fuelled demand for haven assets, while increasing Brexit concerns and weak Euro-area data drove European bond yields down.

“There’s no single smoking gun, but gilts are rallying because of political risks, bunds are doing OK because Germany PMI data were still bad, and equities are suffering as US-China trade-war fears gradually intensify,” said John Davies, an interest-rate strategist at Standard Chartered Plc.

This backdrop, combined with the fact that inflationary pressures remain muted, has boosted expectations that the Federal Reserve will cut interest rates by the end of this year. Increased bets on central bank easing has seen the two-year US Treasury yield — which is much more sensitive to monetary policy expectations — also tumble to its lowest level in more than a year. It fell further Thursday, even though Federal Reserve officials signalled they were in no rush to change interest rates in minutes from their April 30 to May 1 policy meeting released on Wednesday.

German Bund yields dropped as much as three basis points to minus 0.11 per cent, while those on their UK peers dropped below 1 per cent for the first time in seven weeks.