The uncertainty and concern here manifested itself in a mixed week for equities, a surging yen and historic lows in global bond yields as investors moved towards safe assets.
Bond yields are calculated and quoted as the gross redemption yield. This is measured as the internal rate of return of the bond and moves inversely to the price. What we have been seeing recently is increasing demand for safe assets, such as government bonds; as a result, prices rose and yields fell.
In Japan the yield on the benchmark 10 year Japanese government bond fell to minus 0.21% whilst the yield on German 10 year bunds also snuck into negative territory for the first time. In the US and UK we saw similar results - the yield on US Treasury notes dropped below 1.6% and in the UK the same metric dropped to 1.11%; these all represented historic lows.
These moves were driven by growing momentum from the Leave camp which saw its probability of a win, as measured by the betting odds move to nearly 40%, but also by confirmation from the Fed over their shift back towards a dovish tone and a lower-for-longer outlook for US interest rates.
With US equities at near historic highs, the FTSE 350 trading on a forward price to earnings ratio of 15 times and now Government bonds yielding historic lows, the markets have been all over the place in reaction to the EU referendum polls and, whatever happens, it’s going to be an interesting week.