NEW YORK: US benchmark Treasury yields rose on Friday for the first time in nearly two weeks as investors repriced the odds that Britons will vote next week to exit the European Union, and as UK politicians halted campaigning on the referendum following the killing of member of parliament Jo Cox.
Cox, a supporter of the campaign for the UK to remain in the EU, was stabbed and shot in her constituency on Thursday and later confirmed dead by British police. There is speculation that Cox's death may lead the referendum to be pushed back or tip the scales toward the "remain" camp.
"We had a situation with Brexit where the assassination of this politician seems to be helping the odds of (Britain) staying a little bit along with a tendency by voters to vote for the status quo when they approach these kinds of events," said Aaron Kohli, interest rate strategist at BMO Capital Markets in New York. Recent polls had shown the coalition backing a withdrawal from the EU gaining momentum, ramping up uncertainty and driving demand for safe-haven US government debt.
The prospect of Britain leaving the EU in a so-called 'Brexit' has prompted major bond buying by investors in the weeks leading up to the vote largely because markets had not accurately priced in the possibility, analysts said.
"It didn't feel like market was really acknowledging the potential volatility or the potential market upset from Brexit until relatively recently," said Lou Brien, market strategist at DRW Trading in Chicago. Fundamental factors, including the Bank of Japan and US Federal Reserve leaving interest rates unchanged and cutting growth and inflation expectations earlier this week, as well as technical factors such as positioning, also played a role in the strong appetite for US government debt this week, Brien said.
Yields on the benchmark 10-year note fell to their lowest in four years on Thursday following the BOJ's overnight decision. On Friday, benchmark 10-year Treasury notes fell 16/32 in price to yield 1.618 percent.
It was the first increase in 10-year yields since June 6. Yields on longer-dated maturities rose to session highs after St. Louis Fed President James Bullard said the US central bank's projections were out of sync with investors and suggested the Fed raise rates once this year and then remain on hold until the end of 2018.