The Bank of England
The Bank of England © AFP

The pound plumbed new depths against the dollar as financial turmoil intensified in the wake of the UK’s Brexit vote, touching $1.2801 on Wednesday, its lowest level in more than 31 years.

Hours earlier, the benchmark 10-year US Treasury yield fell to a record low, as investors on Tuesday sought top-tier government debt.

The pounds plight came as the Bank of England is expected to loosen policy later in the year and followed news on Tuesday that a number of UK asset were halting retail investors from pulling money out of property funds.

London’s property stocks remained under pressure on Wednesday, with losses of between 1.5 per cent and 3 per cent common for share prices across the sector. The more UK-focused FTSE 250 mid-cap index fell a further 0.4 per cent, while the FTSE 100 rose 0.2 per cent, finding some support.

Demand for government paper continued, keeping pressure on yields. The clamour for havens sent Switzerland’s 50-year bond yield below zero for the first time while the 10-year Treasury yield, a crucial benchmark for global interest rates, fell to 1.34 per cent and into uncharted territory.

Germany, France, Switzerland and Australia have all seen record lows in yield for their 10-year benchmarks this week.

The 10-year UK gilt set a record low of 0.743 per cent on Wednesday after poor UK service sector data and as the Bank of England’s Financial Stability Report signalled a challenging outlook.

“There will be a period of uncertainty and adjustment following the result of the referendum,” the BoE’s Financial Stability Report said. “It will take time for the United Kingdom to establish new relationships with the European Union and the rest of the world. Some market and economic volatility is to be expected as this process unfolds.”

The 10-year Treasury yield has dropped 40 basis points since the UK voted to leave the EU, and has declined for the past seven consecutive weeks as markets price in a fresh round of stimulus from global central banks.

“Whilst the absolute level of gilt yields is very low, we think that further monetary easing and the high degree of economic uncertainty will support yields,” said Mike Amey, head of Sterling Portfolios at Pimco. He expects the BoE to cut rates to zero, but not below — “if further monetary easing is required we would expect the MPC to restart quantitative easing”.

Analysts at RBC said: “This [decline in yields] clearly comes on the back of the interest rate cut expectations and potentially expectations for further QE.

“While we reckon that the absolute level of yields could deter some investors, we think there is a chance that yields might fall even further — mainly driven by our view that even at present level the market remains too timid in terms of UK rate cut expectations.”

The 50-year Swiss yield touched a record low of minus 0.021 per cent and the 10-year yield dropped to a new all-time nadir of minus 0.68 per cent.

Rates have been tugged lower by “uncertainty and its impact on the economy — leading to expectations of further monetary support and delayed rate hikes”, said Rabobank strategists.

“While this political uncertainty remains, the way down seems to be the path of least resistance for now,” they added.

“Outside the UK, yields are in retreat globally in anticipation of further monetary easing, said Dierk Brandenburg, senior sovereign analyst at Fidelity International. “Prospects of further political instability in the UK raises risk for gilt investors in case foreigners pull back from the market.”

The Japanese government 10-year bond yield was -0.248 per cent and the 10-year Bund was -0.186 per cent.

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