“If you go, where shall I go? What shall I do?” All film buffs will remember Scarlett O’Hara running down the staircase of her beautiful civil war Atlanta residence in a futile attempt to stop handsome Rhett Butler leaving her for good. And all of us will remember his shocking answer: “Frankly my dear, I don’t give a damn”.
The power of this dramatic, but at the same time, beautiful, scene has broken the hearts of many, ending a four-hour movie and making it one of the most famous finales ever screened. It would definitely have been different had the movie lasted another fours hours during which Rhett Butler and Scarlett O’Hara continued to go back and forth with the same recriminations. It would have certainly left viewers bored and underwhelmed.
In some ways, this is exactly what is happening with Brexit. Although all politicians agree that everybody wants to ensure the peaceful departure of the United Kingdom from Europe, we cannot help but to find some soap opera resemblance in the news surrounding Brexit that we read from newspapers these days. Let’s face it: although entertaining, Brexit news is becoming a yawn for investors.
By now everybody understand that the UK wants to get out of the European Union, and everybody understood that it is not something that is going to happen overnight. Prime Minister Theresa May might quell cabinet rebellions but she still it cannot prevent politicians from making dramatic exits such as the ones we have seen from David Davis and Boris Johnson.
Amid the whole drama, the bond market doesn’t seem volatile enough.
As you can see from Figure 1, since 2008 until today the 10-year Gilts yield has been gradually reducing and trading within a decreasing trend channel. Although we might expect Gilts to be positively affected amid Brexit talks (as GBP investors seek to flee to safety), we can see that since the beginning of 2018 Gilts yield have been trading close to the upper trending line of the trend channel, indicating that investors are not too concerned about Brexit-related risks yet. If they were seriously worried, Gilt yields would fall considerably lower, as we saw during the 2016 Brexit vote or the 2011/2012 European debt crisis. What Gilts are telling us today is that investors are waiting to jump back to riskier assets once that a Brexit deal has been reached.