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The Markets
The British may be leaving. The British may be leaving.
Last week, the interest rate on 10-year U.S. Treasuries dropped to levels last seen in 2013. Why, you may ask, would bond yields move lower when Federal Reserve policy is to push interest rates higher? The answer can be found across the pond.
On June 23, the United Kingdom, a.k.a. Britain, will vote on whether the country should remain in the European Union (EU) or leave. The New York Times reported:
"The economic effect of an exit would depend on what settlement is negotiated, especially on whether Britain would retain access to the single market for duty-free trade and financial services...Most economists favor remaining in the bloc and say that an exit would cut growth, weaken the pound, and hurt the City of London, Britain's financial center. Even economists who favor an exit say that growth would be affected in the short and medium term, though they also say that Britain would be better off by 2030."
When polling indicated voters were leaning toward leaving the EU, and bookmakers indicated a neck-and-neck race, investors got worried and sought the safety of U.S. Treasuries. That helped push Treasury yields lower.
Rates on government bonds in Europe, and elsewhere, moved lower, as well. In some cases, those rates dropped into negative territory. Barron's reported more than $10 trillion of government bonds had negative yields last week. Investing in 10-year Swiss government bonds cost investors about 50 basis points, while investing in Japanese 10-year government bonds cost 17 basis points.
That makes earning about 1.6 percent on a 10-year U.S. Treasury look pretty good.
Data as of 6/10/16
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500 (Domestic Stocks)
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-0.2%
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2.6%
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-0.4%
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8.5%
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10.5%
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5.4%
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Dow Jones Global ex-U.S.
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-0.9
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-1.0
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-12.4
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-1.2
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-1.2
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0.3
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10-year Treasury Note (Yield Only)
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1.6
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NA
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2.5
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2.2
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3.0
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5.0
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Gold (per ounce)
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2.8
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20.1
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7.3
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-2.7
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-3.6
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7.7
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Bloomberg Commodity Index
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2.1
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13.2
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-13.4
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-12.0
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-11.7
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-6.4
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DJ Equity All REIT Total Return Index
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0.4
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8.0
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15.6
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10.9
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12.3
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7.2
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S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
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