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(Bloomberg) -- The yield on Australia’s benchmark 10-year bond dropped below the central bank’s cash target for the first time since 2012 after the Swiss National Bank’s decision to abandon its currency cap sent global markets reeling.

The 10-year bond yield slid as much as 18 basis points to a record 2.49 percent on Friday in Sydney, below the Reserve Bank of Australia’s 2.5 percent key rate. It was last below cash in December 2012, when the RBA target was 3 percent.

Global bond yields plunged after the SNB unexpectedly announced in Zurich on Thursday it was scrapping a three-year policy of capping the Swiss franc against the euro. The move came ahead of a European Central Bank meeting next Thursday in Frankfurt at which policy makers may announce plans to buy sovereign bonds, further enhancing the allure of assets such as Australian bonds that provide both safety and yield.

“The combination of private savings, regulations that are driving banks to buy fixed income and central bank balance sheet expansion is creating an insatiable global appetite for sovereign bonds worldwide,” Martin Whetton, a Sydney-based interest-rate strategist at Australia & New Zealand Banking Group Ltd., said by phone. “Aussie bonds are attracting demand because we still have higher yields than most and a yield curve that is steeper than most, even after recent flattening.”

The 10-year rate was at 2.51 percent as of 10:07 a.m. in Sydney. The three-year rate was at 2.06 percent, having fallen as much as 14 basis points to a 2 1/2-year low of 2.03 percent earlier in the day. The gap between the two narrowed to 45 basis points, the least since April 2013, from 15 basis points a year ago.

ANZ’s Whetton reiterated his prediction that the Aussie 10- year rate may drop to 2 percent this year as global yield curves flatten.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Garfield Reynolds, Naoto Hosoda

Bloomberg