By Marc Jones

LONDON (Reuters) – The yield on the 10-year German Bund, Europe’s benchmark government bond, fell below zero for the first time on Tuesday as worries about a potential British exit from the European Union sent investors rushing for safe-haven assets.

Polls and bookmakers’ odds showed a rising chance of a Brexit vote in June 23’s referendum as Britain’s largest tabloid newspaper, the Sun, also came out in favour of the leave camp.

The British pound remained fragile near a two-month low and world stocks slid for a fourth straight day but it was the historic bond market moves for the Bund that captured best the mood of uncertainty.

The 10-year Bund yield fell as low as minus 0.002 percent, which effectively means that investors are paying to lend money to the German government for a full decade.

“The market has adjusted to the head-to-head Brexit race and is pricing in maximum uncertainty,” said ABN Amro’s chief investment officer Didier Duret.

“The vote is a historic moment … and this (Bund move) is a demonstration that bonds, even though they are flirting with the zero line, will continue to be seen as the insurance policy in the portfolio.”

There were other factors feeding the bond market rally.

The U.S. Federal Reserve is expected to keep interest rates on hold for at least another month when it starts a two-day meeting later, while oil prices, whose recent rebound had helped confidence, has sagged back below $50 a barrel.

European shares fell for a fifth straight session to a new three-month low, dropping 1 percent as commodities stocks tumbled around 2 percent.

In currency markets, the pound dropped back to $1.1437 and the dive for safety lifted the Swiss franc to a three-month high of 1.0833 francs to the euro. The yen rose to 118.90 yen per euro, a more than three-year high.

Investors have readied for a potential plunge in sterling by buying pound ‘put’ (sell) options. Implied volatilities have soared, with one-month volatility forwards hitting an unprecedented level at around 28 percent this week.

“Although those opinion polls were not necessarily reliable in the case of Scotland’s referendum on its independence, the markets have been swayed by them recently,” said Hideki Kishida, fixed income analyst at Nomura Securities.

(Editing by Catherine Evans)

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