Treasuries outlook: yields fall to four-month lows on Brexit fears

US Treasury yields fell to four-month lows on Friday as European sovereign debt yields plunged on concerns about a potential British exit from the European Union and global growth. Ten-year yields in Germany, Japan and the United Kingdom all struck record lows on Friday. German Bund yields, the benchmark for borrowing costs across the euro zone, have fallen more than 10 basis points in the past week to as low as 0.01 percent .
"There is some flight to safety because of concerns about 'Brexit'," said Lou Brien, a market strategist at DRW Trading in Chicago. Bonds pared price gains, but then resumed their rally after a poll by ORB for The Independent newspaper showed that the "Leave" camp was 10 points ahead of "Remain" with less than two weeks to go before Britain's referendum.
Benchmark 10-year notes ended up 12/32 in price to yield 1.639 percent, after earlier falling to 1.627 percent, the lowest since February 11. The notes have technical resistance at around 1.60 percent, and a fall below this level would likely trigger further yield drops, said Brien. Plunging yields across the globe have increased the relative attractiveness of Treasuries, which pay far higher rates than comparable sovereign debt, and helped the Treasury sell $56 billion in coupon-bearing supply to strong demand this week.
"In addition to all of the concerns about global growth and the 'Brexit,' you have people who are just buying US bonds as a better alternative to everything else that's out there," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle. The European Central Bank's commencement of its corporate bond purchase program this week has also increased demand for higher-yielding bonds.
The next major focus for investors is the Federal Reserve's meeting next week, where the US central bank is expected to leave interest rates unchanged. Investors have pushed back expectations on when the Fed will next raise rates to December. Before last week's disappointing jobs report for May, a rate hike in June or July was viewed as possible. The next major economic release in focus will be Tuesday's retail sales report for May.