Tremors from the Brexit vote sent investors scrambling for the safety of government bonds on Tuesday, dragging Canadian and U.S. sovereign yields down to record lows.
The uncertainty wrought by Britain's potential withdrawal from the European Union has inflamed fears for the global economy. And once again, the world looks to central bankers to maintain or extend monetary stimulus.
Both forces have extended the spread of ultra-low and negative interest rates through the world's sovereign debt market.
"There is greater understanding that the yield moves are not temporary but a glaring reflection of the new normal across the globe," Shyam Rajan, rates strategist at Merrill Lynch, said in a note.
As a result, fixed-income analysts have had to scrap their 2016 forecasts, while investors recalibrate for an environment where substantially rising rates are again a distant reality.
"We don't expect yields to change much over the next 12 months even," said Patrick O'Toole, vice-president of global fixed income at CIBC Asset Management.
Prior to Tuesday, recent trading sessions saw markets regain their composure from the initial shock of the Brexit vote. But the flight to safety resumed, sending prices on riskier assets, such as stocks down in favour of the highest-quality bonds. And since bond prices and yields move in opposite directions, benchmark yields in several developed markets sank.
The yield on U.S. 10-year government bonds touched a record intraday low of 1.35 per cent on Tuesday, while the Canadian 10-year yield posted its lowest close on record, below the 1 per cent mark.
In Europe, U.K. gilts also registered unprecedented lows on the day, while the yield on Switzerland's 50-year government bond fell below zero for the first time.
Almost one-third of developed market sovereigns trade with negative yields, Mr. Rajan said. And U.S. Treasuries now account for almost half of those with positive yields.
Even before the British referendum, prevailing anxieties over the state and the course of the global economy had fuelled demand for safe-haven bonds.
Britain's national expression of discontent with the European Union introduced a new layer of political and economic risk for investor to contemplate.
While there is little clarity on the long-term costs, the Bank of England previously said a vote to leave would pose a risk to domestic financial stability.
"Some of those risks have begun to crystallize," the Bank's Governor, Mark Carney, said on Tuesday. He also announced an easing of banks' capital requirements, and hinted at rate cuts this summer.
Any expectation that the U.S. Federal Reserve will continue on its planned path of gradually hiking interest rates has vanished, meanwhile. The market is now pricing in a greater probability of a cut, in fact, and no chance of a hike before next summer.
"There is the expectation that the central banks are going to continue to do anything and everything to stop a washout of asset prices," Mr. O'Toole said.
But the renewed impetus for central bank intervention is adding to concerns about the efficacy of extraordinary monetary stimulus and the risks of negative interest rate policies.
"It's supposed to stimulate growth, but I think it's doing more harm than good," Mr. O'Toole said. "Look at the stress this will cause for pension funds, insurance companies, and banks." All three of which face financial challenges as a result of rock-bottom yields.
He suggested that the economic fundamentals in Canada and the United States are not so bad as to warrant such extreme downward pressure on yields.
But when sentiment is fragile, the market can react sharply to opaque risks.
"This is pessimism on a global scale," said Aaron Kohli, interest rate strategist at BMO Nesbitt Burns. "For us to get to these levels, it suggests that pessimism about global growth is getting more deeply rooted in the minds of investors."