Southern euro zone bonds feel Brexit heat after surprise poll

LONDON: Bond yields in Europe's southern peripheral countries crept higher on Monday after a poll late on Friday showed a significant 10 point lead for those campaigning to take Britain, the world's fifth largest economy, out of the European Union.

The vote due in 10 days time is expected to have far-reaching consequences for the rest of a continent where support for the economic and political union is wavering in the face of low growth and high unemployment.

While most polls show Britons still closely divided ahead of the June 23 referendum, Friday's ORB poll for The Independent newspaper showed the biggest lead for the leave camp since the series started a year ago.

Worries over Brexit drove sterling volatility to a record high on Monday as the pound fell to an eight-week low against the U.S. dollar and a three-year trough against the safe haven yen.

"In case of a Brexit ... we would suggest that the political risk for the rest of the EU and the euro area in particular will increase," RBC's chief European macro strategist Peter Schaffrik said.

Italian and Spanish 10-year yields rose 4 basis points to 1.35 and 1.48 percent, while Greek yields were up some 17 bps at 7.85 percent.

German equivalents, which serve as a refuge for investors in times of stress, remained within a whisker of zero at 0.02 percent, having touched a record low of 0.01 percent on Friday .

Global government bonds trading with negative yields now exceed 8 trillion dollars, a record high according to JP Morgan.

Aside from the prospect of Brexit, there was a myriad of other reasons for investors to remain cautious.

The United States suffered the deadliest mass shooting in its history on Sunday, with 50 people killed at a nightclub in Florida by a man pledging loyalty to Islamic State.

Meanwhile, the steady drip of economic data has highlighted an underpowered world economy despite years of heavy stimulus delivered by central banks.

Asia's darkening economic prospects weighed on stocks and pushed oil prices back below $50 a barrel on Monday. That, in turn, further dampened the outlook for global inflation.

In the United States, investors have all but written off the chances of the Federal Reserve raising interest rates at its policy meeting this week.