Saturday, July 02, 2016

Brexit observation - equity and bond markets so far

It's interesting to observe that the FTSE has recovered strongly since the initial Brexit shock, while the bond market rally (due to a flight to safety) has sent global bond yields tumbling even lower. The government can currently borrow money on a 10-year duration at just 0.86%.

It seems a bit odd that when the future economic outlook for a country's is pretty much rubbed out and replaced with a big question mark, when it's currency is decimated, when it's government creates the worse political vacuum seen in decades, and that when a country's credit rating is downgraded, that it's cost of borrowing plummets. This is how distorted the capital market has become. It is in no way a sign of faith in the plans of a country but reflects a shortage of safe assets globally. It is, nevertheless, very odd.

No comments: