June 16, 2016 (LBO) – The prospect of Britain leaving the European Union is boosting demand for safe haven assets, with bond yields falling to new lows, as the Fed suggests that low yields could be a more longer term phenomenon.
Benchmark 10-year yields are plunging across the globe. Japan fell to minus 0.21 percent. Australia fell below 2 percent, and Germany below zero. Switzerland’s 30-year security offers the nation’s only positive yield at 0.027 percent, Bloomberg reported.
Federal Reserve Chair Janet Yellen fueled moves saying slow productivity growth and aging societies may keep interest rates at depressed levels.
U.S. 10-year yields fell two basis points to 1.55 percent as of 11:23 a.m. in Tokyo. The yield is within 20 basis points of the record low, and is more than 100 basis points lower than the average forecast from analysts on Dec. 31 for it to stand at 2.60 percent by June 30.
South Korea’s bonds rose, sending 10-year yields down three basis points to an unprecedented 1.59 percent.
Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular.
On Wednesday, she pointed to more permanent forces that could depress rates for longer, namely, slow productivity growth and aging societies, in the U.S. and throughout much of the world.
In a press conference after the Fed held policy steady, Yellen spoke of a sense that rates may be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal.”
Summers, who was in the running to get the Fed job before losing out to Yellen in 2013, has been contending for several years that the U.S. and other industrial countries are mired in “secular stagnation” of scant economic growth.
A key component of his argument: An excess supply of savings and a paucity of demand is depressing equilibrium interest rates in the advanced world, making it difficult for central banks to ease credit enough to lift growth and inflation.
In a blog posting Tuesday, former Treasury Secretary Summers likened the Fed’s actions in recent month to “Groundhog Day.” It keeps poking its head up hoping to raise interest rates only to back away in the end.