The Canadian government bonds gained on Monday after Britain voted to leave the European Union in a referendum after 43 years of membership in the bloc on Friday. Also, tumbling crude oil prices drove investors towards safe-haven buying.
The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 4-1/2 basis points to 1.118 percent and the yield on the short-term 2-year bonds dipped 3-1/2 basis points to 0.507 percent by 12:50 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, the Canadian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Canada's target. Crude prices continue to hold weaker in European session on Monday as investors continued to show caution on the back of an unexpected outcome of a referendum last week that sets the stage for Britain to leave the European Union. The International benchmark Brent futures fell 2.06 percent to $48.02 and West Texas Intermediate (WTI) dipped 1.91 percent to $46.73 by 12:50 GMT.
Lastly, Canada’s main stock index fell on Friday the most in four months, as financial and energy stocks slid after Britain voted to leave the European Union, while the resulting market turmoil boosted gold miners as demand for the precious metal surged.
That helped the resource-rich Toronto Stock Exchange’s S&P/TSX composite index outperform U.S. and European indices despite broad and steep losses for most of its main sectors that pushed it down 1.7 percent overall. It closed down 239.50 points at 13,891.88, but was only marginally lower over the week.
The material has been provided by InstaForex Company – www.instaforex.com