The Eurozone government bonds climbed on Monday after UK voters decided to leave the European Union in last week's referendum. The benchmark German 10-year bonds yield, which moves inversely to its price fell 5 basis points to -0.100 percent, French 10-year bund yield dipped 6 basis points to 0.322 percent, Irish 10-year bonds yield moved down 8 basis points to 0.770 percent, Italian equivalents inched lower nearly 4-1/2 basis points to 1.439 percent, Netherlands 10-year bonds yield tumbled 4 basis points to 0.172 percent, Portuguese 10-year bonds yield dwindled 3 basis points to 3.339 percent, Spanish 10-year bonds yield slid 18 basis points to 1.463 percent and British 10-year bonds yield ticked down 13 basis points higher to 0.958 percent by 11:00 GMT.
On Friday, just over 72 percent of the UK population, the highest participation rate in a country-wide poll since 1992 have participated in a historic referendum to abandon the EU project for good, highly legitimising the 51.9 percent vs 48.1 percent in favour of leaving, result. This outcome flies in the face of the high implied probabilities, based on bookie’s betting odds, of staying in, is at odds with several of the final (pre-referendum) opinion poll findings, and indeed goes against the grain of the number of self-confessed EU-sceptics who are said to have reluctantly moved towards the ‘Stay’ camp.
Although the UK physical departure from the EU will not occur for at least a few years – article 50 of the Lisbon Treaty must first be invoked – domestically, the UK faces a very uncertain l-t economic future, and a sea-change in the political landscape. PM Cameron is to step down within three months and is likely to take along with him, Chancellor Osborne. The face of the next Conservative ‘administration’ that will be responsible for negotiating the country’s divorce and orderly exit terms from the EU will be altered, as the centre of gravity of the Tory government moves decisively further to the right.
Moreover, we foresee that the UK’s relationship with ex-EU partners will be significantly altered. Beyond that, in view of Scotland’s 62 percent vote in favour of remaining in the EU, the SNP will offer another referendum on independence to Scotland, on the basis of Scotland having been yanked out of the EU against the will of its people. We see next time around the Scottish people will likely vote in favour of secession.
In addition, Spain's markets are outperforming (the IBEX is up about 3 percent and the 10-year Spanish/German spread is 8 basis points narrower) after the country's elections yesterday resulted in much-lower-than-expected support for the left-wing Podemos party and a gain of parliamentary seats for PM Rajoy's centre-right Popular Party. The PP picked up 14 seats to garner 137 of the 350 member chamber, the Socialists lost 5 seats to 85, Podemos was unchanged at 71, and the new centrist Citizens party lost 8 seats to 32.
With about 40 percent of the seats, this result seems likely to maintain the PP's hold on power, and thereby herald political stability. Nevertheless, negotiations won't be straightforward, as even with the Citizens party in a coalition the PP wouldn't have a majority.
Meanwhile, EUR/GBP briefly hit a post-Brexit and 27-month high at 0.8325 a short while ago. Currently back lower around 0.8305/10. The pan-European STOXX 600 index was down 3 percent and the euro-area blue-chip gauge, the STOXX 50 dipped 1.82 percent. The FTSE 100 Index fell 1.62 percent, the DAX trading 1.87 percent lower and the CAC-40 tumbled 1.95 percent by 11:00 GMT.
The material has been provided by InstaForex Company – www.instaforex.com