Scottish Independence Ruled Out in Bonds to FX: Chart of the Day


With five weeks to go before Scotland’s referendum, traders in bonds and currency markets are concluding the vote on independence will be rejected.

The CHART OF THE DAY shows a foreign-exchange measure of market risk known as implied volatility has languished below historical norms as the plebiscite on whether Scotland should separate from the U.K. approaches. Britain’s government bonds are outperforming Treasuries, signaling the risk of a sovereign breakup isn’t deterring buyers. Deutsche Bank AG and BNP Paribas SA had predicted higher volatility should polls signal a shift in voting intentions in favor of the Yes camp.

Instead, support for staying in the U.K. rose 4 percentage points to 45 percent and backing for independence was unchanged at 32 percent, according to a monthly survey published by TNS yesterday. Among people certain to vote, the No camp had 46 percent with backing for Yes at 38 percent.

Scotland’s Independence Bid

“The polls have widened again,” said Oliver Harvey, a currency strategist at Deutsche Bank in London. “I wouldn’t be super bullish on volatility given the way the polls are, but surprises do happen.”

Three-month implied volatility for the sterling-dollar exchange rate was at 5.7 percent yesterday, down from 7.7 percent on March 21, 2013, when Scottish First Minister Alex Salmond set the date for the referendum for Sept. 18 this year. Gilts returned 5.73 percent in 2014, compared with a 3.73 percent gain for Treasuries, Bloomberg World Bond Indexes show.

Polls suggest the nationalist leader has yet to convince voters of the benefits of forming Europe’s newest nation state. In the first televised debate of the campaign on Aug. 5, Alistair Darling, the former U.K. chancellor of the exchequer who heads the No campaign, was judged the winner after questioning Salmond on the use of pound in an independent state. A second debate is planned for Aug. 25.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at

To contact the editors responsible for this story: Paul Dobson at Todd White

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