GLOBAL MARKETS-Bonds reign supreme, equities struggle on recession, Brexit fears

* Yields on U.S. 30-year bonds, 10-year German bunds at
record low
* Asian shares, U.S. stock futures down about 0.4%
* Gold near 6-year high, silver shines
* Pound hit by no-deal Brexit fears as Johnson suspends
parliament

By Hideyuki Sano
TOKYO, Aug 29 (Reuters) - Global bond yields flirted with
record lows while stocks struggled to recover on Thursday, as
global recession worries from intensifying U.S.-China frictions
and the spectre of a no-deal Brexit drove investors to safer
harbours.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.38%, Singapore shares .STI hit
eight-month lows, while Japan's Nikkei .N225 shed 0.44%.
On Wall Street, the S&P 500 .SPX gained 0.65% on Wednesday
due in part to gains in the energy sector following a rebound in
oil prices. But U.S. stock futures lost 0.4% in Asia.
Bond markets around the world painted a gloomier picture,
with yields on 30-year U.S. Treasuries and 10-year German bunds
yield both hitting record lows - 1.905 percent US30YT=RR and
minus 0.716 percent DE10YT=TWEB on Wednesday.
Inversion remains a prominent feature across the U.S. yield
curve, where long-dated yields are below short-dated ones, an
unsettling sign as yield curve inversions have been a reliable
leading indicator of future U.S. recessions.
Italy's 10-year bond yield IT10YT=TWEB briefly fell below
1% for the first time ever. The rush to buy Italian debt, which
carries higher yields than the 'core' euro zone countries, was
in part prompted by growing hopes that a new government will
soon be formed in Rome and a new election averted. In Asia, the 10-year Japanese government bond yield
JP10YTN=JBTC dipped 1 basis point to minus 0.285%, just above
its record low of minus 0.300% touched in 2016.
"Falls in global bond yields reflect growing concerns that
long-term global growth is slowing down on U.S.-China tensions
and worries over subsequent global supply chain disruptions,"
said Tomoo Kinoshita, global market strategist at Invesco Asset
Management in Tokyo.
"Stock markets on the other hand are supported in the
near-term by hopes of more stimulus, notably from the Federal
Reserve and the European Central Bank," he said.
The two major central banks are expected to cut rates next
month, while many investors believe the Bank of Japan could join
the fray if market sentiment weakens further.
The Trump administration on Wednesday made official its
extra 5% tariff on $300 billion in Chinese imports and set
collection dates of Sept. 1 and Dec. 15.
That means products such as smartwatches, Bluetooth
headphones, flat panel televisions and many types of footwear
will be levied from next month, raising worries about U.S.
consumption, one of the few remaining bright spots in the world
economy. The precious metal markets highlighted investors' quest to
buy safer assets.
Gold XAU= rose 0.17% to $1,541.3 per ounce, near six-year
highs of $1,556.1 set earlier in the week while silver XAU=
extended its bull run and rose 0.85% to fetch $18.32 per ounce,
edging near its 2017 peak.
Sharp falls in bond yields, however, have some investors
worried that the recent rally in bond prices may have gone too
far.
The 30-year U.S. bond yield, now at 1.921%, has fallen 60
basis points so far this month, to slip below dividend yield of
U.S. shares, which stood at 2.04%.
"Yields may have fallen to unjustifiable levels even if one
bets on a long-term stagnation in the global economy. And when
we had a major bond correction in Europe four years ago, the
adjustment was quite sharp," said Yoshinori Shigemi, global
market strategist at JPMorgan Asset Management in Tokyo.
In the currency market, the yen gained 0.2% to 105.90 per
dollar JPY= while the New Zealand dollar NZD=D4 slipped 0.4%
to four-year lows on grim domestic business sentiment data.
The euro was steady at $1.1084 EUR= .
The MSCI emerging market currency index .MIEM00000CUS is
at its lowest levels since mid-November, having fallen 0.9% so
far this week and on course to mark its biggest monthly fall in
more than seven years driven by worries about a global slowdown.
The British pound licked its wounds at $1.2200 GBP= ,
having slumped 0.61% the previous day as the most serious UK
political crisis in decades deepened after Prime Minister Boris
Johnson decided to suspend Britain's parliament for more than a
month before Brexit.
The move will limit the time opponents have to derail a
disorderly Brexit but also increases the chance that Johnson
could face a vote of no-confidence in his government, and
possibly an election. "From an economic point of view, actively pursuing a no-deal
Brexit through suspending parliament is tantamount to actively
pursuing a recession," said Seema Shah, Chief Strategist,
Principal Global Investors in London.
Concerns about Brexit are already taking a toll on Europe,
with the recent export slump in Germany driven mainly by weaker
sales to Britain rather than the broader trade war. Oil prices held firm after a gain of nearly 2% in the
previous session as a larger-than-expected decline in U.S. crude
stockpiles helped ease worries about weakening oil demand.
In Asia Brent crude LCOc1 futures fell 0.1% to $60.43 a
barrel while U.S. West Texas Intermediate (WTI) crude CLc1
gained 0.18% to $55.88 per barrel.

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