Source: BBC

By Chris Johnston

Business reporter

Stock markets across Europe fell on Tuesday as investors weighed up the consequences of next week’s EU referendum vote.

The FTSE 100 in London closed down 2%, or 121 points, at 5,923 – the first time the index has been below the 6,000 mark since February.

The Cac in Paris sank 2.3%, while Frankfurt shed 1.4%.

Jitters sent the interest rate on 10-year bonds issued by the German government negative for the first time.

Recent opinion polls have suggested that there may be growing support for a Brexit vote in the 23 June referendum.

“Markets are on the verge of a full-blown panic sell-off due to rising probability of Brexit,” said Rabobank analysts.

PVM Oil Associates analyst Tamas Varga said: “Safe havens are back in fashion. The thought process is that if the UK leaves the EU, then the EU might slip back into recession.”

Markets were already jittery over the health of the global economy and worries over when the US may start raising interest rates.

A new survey from Bank of America Merrill Lynch showed fund managers were holding more cash than at any time since 2001 and have reduced the number of shares they own to four-year lows. “Globally, sentiment remains weak,” the survey said.

Returns on 10-year UK government bonds fell by a significant amount – 0.06 percentage points – to a record low of 1.146%, while 20-year and 30-year “gilts” also dropped to record lows.

The decline in yields, or returns, for government bonds reflects strong demand from investors for a safe place to park their money.

‘Immense challenges’

In the case of Germany, the yield fell as low as minus 0.032% – meaning investors were prepared to pay, rather than be paid, to own “Bunds”.

Luke Hickmore, co-manager of Aberdeen Asset Management’s Strategic Bond Fund, said that Bund yields could fall as low as minus 0.1%: “This is just investors getting, very, very, very nervous about the way this [Brexit] vote is going to go.”

Ulrich Kater, economist at DeKaBank, said the uncertainty about a possible Brexit was driving investors to the safe haven of German bonds. “The drop in yields below the zero mark once again shows the immense challenges currently facing global financial markets,” he added.

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