Our views

Brexit - impact on UK government and index liked bonds


Paul Rayner, Head of Government Bonds

24 June 2016

Although we had positioned our funds for a ‘Remain’ vote, we had reduced our risk positions in the past week, which will have mitigated the impact from this morning’s result.

Over the last four days, we had taken profits on our cross-market positions in the US and Norway, and on long-dated index-linked gilts. We had reduced our short duration position and lowered overall portfolio risk by 30-50%.  Today, gilt yields have returned to roughly the level of last Thursday. We are now roughly 0.7 years short duration (compared to 1.1 years last week). Today, we have been selling long-dated index-linked gilts, which have hit record-low yields, ahead of the syndication in three weeks’ time. Our funds are protected by underweight exposure to long-dated (versus short-dated) issues, where the yield curve has now steepened. We believe there is a risk that the UK may be downgraded, and are therefore wary of chasing gilt yields lower.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.