Global government bond yields sink as world markets eye central bank action

NEW YORK (Reuters) - Global stock markets climbed for a fourth day and government bond yields around the world hit their lowest levels in years on Friday, driven by the prospect of further cuts in interest rates and more central bank bond buying to support weak economies.

A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 1, 2016. REUTERS/Andrew Kelly

Signs that the world’s big central banks will go even easier on monetary conditions, extending an era of ultra-low interest rates, have helped drive a recovery for stock markets after a bout of volatility following Britain’s vote to leave the European Union last week.

The 30-year U.S. Treasury yield US30YRT=RR hit its lowest since the 1950s at 2.189 percent.

The yen climbed against the dollar and sterling was pinned near 31-year lows as the chances of a U.S. rate hike from the Federal Reserve receded and Britain’s central bank hinted at a rate cut and more stimulus in the months ahead. European shares rose with the European Central Bank also reported to be looking at bond purchases.

“The market is trying to front-run possible central bank actions,” said Ed Al-Hussainy, a global rates and currency strategist at Columbia Threadneedle in Minneapolis.

The 10-year U.S. Treasury yield US10YT=RR fell to its lowest in four years, hitting 1.382 percent and taking it within striking distance of record lows. French and Dutch equivalents hit all-time lows. Those among Europe's struggling southern states also fell, with Spain's 10-year debt at its lowest in over a year.

Bond returns have outstripped stocks so far this year. The Bank of America/Merrill Lynch U.S. Treasury index .MERG0Q0 returned 5.7 percent in the first half of the year, outpacing a total return of 2.69 percent for the S&P 500.

Bundesbank President and ECB rate setter Jens Weidmann, however, poured cold water on the idea of further stimulus. He said monetary policy is already expansionary and expressed doubts further easing would have a stimulus effect.[F9N18600Y]

Gold climbed and was headed for its fifth weekly gain, supported by a weaker dollar and the prospects for further monetary policy easing. Spot gold XAU= rose to a session high of $1,341.40 an ounce. The metal gained 8.8 percent in June, its biggest monthly rise since February.

Silver prices XAG= soared, jumping 5.5 percent to push the metal 11.5 percent higher on the week, its best weekly gain since August 2013. It last traded at $19.66 an ounce, the highest in nearly two years. [L4N19N4FX]

The MSCI All-Country World index .MIWD00000PUS rose 0.5 percent and has risen nearly 6 percent in the last four days, although it is still below where it was trading prior to Britain's referendum on June 23.

The S&P 500 .SPX, trading close to all time highs, gave up some of its gains into the afternoon as financial stocks weighed. The index ended up 0.2 percent.

Britian's FTSE .FSTE has been one of the surprising leaders of the post-referendum rebound. It rose 1.1 percent and was trading at its highest level in over a year. The index is nearly 4 percent higher than before the referendum.

In currency markets, the dollar fell 0.6 percent against the yen JPY= and was down 0.5 percent against a trade-weighted basket of currencies .DXY.

Sterling traded down 0.3 percent to $1.3274, continuing its slide after Bank of England Governor Mark Carney said on Thursday that the central bank would probably need to pump more stimulus into Britain’s economy over the summer. Sterling was approaching a recent low of $1.3218. [USD/]

The euro rose 0.2 percent against the dollar to $1.1128.

The weaker dollar also spilled over into the commodities market, pushing up the price of oil. Brent crude futures LCOc1 settled up 64 cents, or 1.3 percent, at $50.35 a barrel.

U.S. crude's West Texas Intermediate (WTI) futures CLc1 rose 66 cents, or 1.4 percent, to settle at $48.99.[O/R]

Additional reporting by Patrick Graham in London and Richard Leong in New York; Editing by Tom Brown and Dan Grebler