Our views

Brexit reaction - impact on fixed income


Ewan McAlpine, Senior Client Portfolio Manager

24 June 2016

Markets around the globe have reacted sharply to a surprising result versus the expectations of the final run-up to the referendum. So far in UK markets, what we have seen is something of an over-reaction: gilt yields have fallen below last week’s lows, reflecting the degree of uncertainty in outlook for the future and in risk assets, and credit spreads have widened so far, undoing the tightening of recent weeks. While the outcome is a negative one for the UK economy, there are many details of the UK’s separation from the EU and of new trading arrangements and so forth still to be decided. We would expect to see some recovery from initial short-term moves. Portfolios remain positioned for a medium to longer-term view that the global economic situation will continue to improve; we believe that government bond yields will rise, but positioning in portfolios will continue to be tactically managed amid high levels of volatility. We believe credit bonds will outperform government bonds and that portfolios should focus on security of cashflows and the delivery of stable and attractive returns over the medium to long term.

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.