background image background image background image

Bonds and why we're bored by Brexit

Althea Spinozzi

Head of Fixed Income Strategy

“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.

Figur 1: 10 year Gilt yield. Source: Bloomberg

Even if investors are really concerned about getting no Brexit deal, there might not be much more upside to Gilts as they are already trading at record tight levels, supported by several destabilising events that since 2008 until today have inevitably compressed yields worldwide.

At the same time, if we look at the Option Adjusted Spread of sterling Investment Grade and High Yield bonds we can see that they have been widening since the beginning of the year, however their levels are similar those seen in 2014 when Brexit was still a remote problem. This means that a meaningful repricing in this space this year has yet not occurred and volatility will put pressure on this asset class only as we approach the Brexit talks deadline in March 2019.

Figur 2: GBP HY and IG OAS. Source: Bloomberg

The reality is that in the past few years we have seen many European banks opening up offices or even acquiring banks in London in an effort to diversify their activities. We have therefore seen an increase of the activity of foreign banks starting to do business with UK companies and investing in UK infrastructure.

The Spanish lender Santander, for example, after its acquisitions of three British banks in 2010, is now an important source of funding not only for businesses, but also for UK retail clients who is looking to enter in simple mortgages to buy houses. Another great example is Sabadell Bank which until not too long ago used to be a Spanish bank with activities focused mainly in the Catalonia region of Spain. With its acquisition of Lloyds TSB in 2015, it managed to successfully diversify its operations and partly detach itself from its troubled and unstable home base.

The real question is whether European banks such as these will still be interested in operating in a market outside the European Union which might not have passporting rights?

Of course this is a puzzle that European borrowers are also facing as the absence of passporting rights will drain a lot of liquidity provided by UK lenders. However, I believe that it will be particularly important for the UK because it would isolate its economy even further from continental Europe and the British will need to rely on other sources of funds.

We can clearly expect some volatility from the turbulent divorce between the UK and the European Union but we expect movements in the bond market to remain within range until something more substantial shakes them from their slumber.

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article
  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article
  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article
  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article
  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.