Adventures in Brexit Wasteland Leave U.K. Bond Markets Nowhere
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Speculators in U.K. bonds will need to see how long a Brexit extension the European Union grants, to work out which way to go. A short delay should see yields move higher but prolonged uncertainty will push them lower.
There is little doubt the EU will allow Britain to defer Thursday’s Halloween deadline. Anything shorter than the U.K.’s request for Jan. 31 may pressure Parliament to ratify the Brexit deal bill, spurring a limited move higher of around 15 basis points in 10-year yields to 0.80% or so. A longer delay will just continue to hurt growth and may push yields down to around 0.50%.