Investors seek shelter from Korean war of words

World
Europe

Highly-rated government bond yields fell on Wednesday as tensions between the DPRK and the United States firmed investor demand for so-called "safe haven" assets.

The DPRK said it is considering plans for a missile strike on the US Pacific territory of Guam earlier on Wednesday, just hours after President Donald Trump told the DPRK that any threat to the United States would be met with "fire and fury".

Pyongyang has made no secret of its plans to develop a nuclear-tipped missile able to strike the United States. It says this is a legitimate means of defence against perceived US hostility, including joint military drills with South Korea.

Trump said a DPRK attack would be met with 'fire and fury' /CNBC Photo

The escalation in rhetoric jarred financial markets as investors sheltered their cash in assets that tend to perform in times of stress.

"Trump's comments about [the DPRK] have created nervousness and the fear is if the President really means what he says," said Naeem Aslam, chief market analyst at Think Markets in London.

German and US government bonds, alongside gold and the Japanese and Swiss currencies, were the main beneficiaries.

Europe's main stock markets drifted lower at the start of trade on Friday, following a sharp rally across global equities earlier this week. /Bloomberg Markets Photo

Yields on German 10-year bonds - the bloc's benchmark which has the top Triple-A rank by all three ratings firms - fell two basis points to 0.456 percent. US equivalents fell three bps to 2.25 percent. Yields on lower-rated euro zone bonds in Portugal , Spain and Italy were flat to slightly higher on the day.

Analysts said demand should remain firm for a sale of four billion euros of five-year German bonds at auction.

Despite brightening growth, inflation has been sluggish in major economies including the United States, Europe and Japan, keeping policymakers cautious over tightening monetary policy.

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Source(s): AP ,AFP ,Reuters