Bonds News

UPDATE 2-Brexit fallout pushes euro zone bond yields, inflation gauge to new lows

* German 10-year yield falls below minus 0.20 percent

* French, Dutch, Finnish and Belgian yields all at lows

* Euro zone 5yr, 5yr forward inflation rate hits 1.25 pct (Adds quote)

LONDON, July 6 (Reuters) - Yields on top-rated debt and long-term inflation expectations in the euro zone hit new record lows on Wednesday on fears that Britain’s vote to leave the European Union would slow global growth.

Signs of stress in Britain’s commercial property market have delivered a fresh blow to sterling, sending it to a 31-year low, and investors prepared for central banks around the world to try to stem any wider Brexit contagion.

“Markets hate uncertainty so there is a push towards safe havens,” said Owen Callan, an analyst at Cantor Fitzgerald. “If things get bad and the economy weakens, central banks are likely to act quickly, so this expectation is also supporting bonds.”

German bond yields out to 15 years are now in negative territory, meaning investors are effectively paying for the privilege of lending to governments.

The 10-year Bund yield fell to a new low of minus 0.204 percent on Wednesday.

As Germany sold two-year bonds at the lowest ever yield at auction, the average yield on all outstanding German debt stood at a record low of minus 0.29 percent, Bundesbank data shows.

And as investors clamour for longer-dated debt still offering just a tiny return, 30-year yields fell below 0.30 percent for the first time. RBC, warning of that these long-dated bonds are “under severe risk of a squeeze”, estimates 30-year yields will test zero “soon”.

Elsewhere, benchmark 10-year bond yields in the Netherlands slipped near zero for the first time, with equivalents in France, Finland and Belgium all at record lows.

Outside Europe, other low-risk bond yields tumbled further. U.S. 10-year Treasury yields hit a record low at 1.34 percent , while long-dated Japanese yields -- already in negative territory -- hit record lows.

Bank estimates show around a third of the world’s government debt now has negative yields, and that pool may only get larger.

“Over the last 30 years, with a few little blips, bond yields have gone in one direction. The number of people that have tried to call the turn is huge,” said Jonathan Gibbs, senior investment specialist in fixed income at Standard Life Investments, adding many had lost heavily on such trades.

A key market measure of long-term inflation expectations in the euro zone -- the five-year, five-year breakeven forward rate -- hit a record low of 1.25 percent, moving even further away from the European Central Bank’s near 2 percent target.

This weakening inflation outlook, alongside the collapsing yields which have shrunk the pool of assets eligible for the ECB’s bond-buying programme, have upped expectations for more monetary easing in Europe.

The ECB holds a non-monetary policy meeting on Wednesday, but Commerzbank analysts said speculation about adjustments to the ECB’s bond-buying programme “add spice” to the gathering.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by Dhara Ranasinghe and John Geddie, graphic by Nigel Stephenson; Editing by Ruth Pitchford