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Bond markets since Brexit

02/08/2016

Bond markets in the UK and Europe have largely calmed following the Brexit vote in June and corporate bonds have rebounded from their short-term weakness immediately after the result. Government bonds continue to be beneficiaries of high demand for safe assets, which is keeping yields at record lows. The focus on central bank action has resumed, but the still high degree of uncertainty surrounding the future shape of Brexit may create further volatility as events develop.

UK and European bond markets have rallied strongly in the weeks since the UK referendum. Yields on government debt have hit new record lows as investors have sought safe havens, while corporate bonds have responded positively to a lack of new negative developments as the fear of a broader crisis has subsided. However, uncertainty remains high as a lack of clarity ahead of the vote has been swiftly replaced by uncertainty regarding the timing and specifics of the Brexit agreement.

In the short term, the focus has returned to central bank policy. In Europe the ongoing European Central Bank corporate bond purchases continue to underpin pricing of eligible securities, while pledges from the Bank of England immediately after the vote result helped stabilise UK markets.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.

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