Brexit

Market participants struggled to assess the fallout from the UK's EU membership referendum on Monday, with fears over rates, politics and portfolios all heaping further pressure on subordinated bank debt.

Emerging market bankers said on Monday that they are optimistic that developing market credit will hold firm as Britain forges ahead into the “world of the unknown” after voting to leave the EU on June 23. But the verdict on primary markets was unanimous: closed for the foreseeable.

What began as a week of turmoil for European credit and equity markets amid Brexit uncertainty is ending on a full circle return with no immediate signs that that the UK will begin a formal exit from the EU soon and amid rumours on Thursday that the ECB will relax the terms of its bond repurchase programme.

The UK’s vote to leave the European Union on Thursday put paid to at least two bond announcements in Latin America but traders said the reaction in secondary markets was nowhere near as brutal as expected.

After more than three months of stable and attractive funding conditions, the European corporate bond market has been turned on its head by the UK EU referendum result.

Capital markets people thought Brexit would not happen because the UK electorate always chooses the sensible option in the end. But it hasn’t.

The UK’s decision to leave the European Union will have a “catastrophic” effect on MTN dealers specialising in the euro, according to bankers, but flows in dollars and Asian currencies should go some way to compensating.

The Swiss bond market is due a readjustment after the UK’s vote to leave the European Union on Thursday, market players said.

The UK may have knocked the eurozone periphery off a cliff as it stumbled on its way out of the European Union on Friday morning. Government bond spreads on Friday echoed those during the eurozone sovereign debt crisis. The gap between Germany and the periphery has opened up like the chasm that has developed between UK voters and the political establishment.

Emerging market bond bankers called Britain’s decision to leave the EU on Friday "madness" but while the fundamental implications for most EM credit are expected to be limited, bankers are fiercely debating how instability in the European Union will affect eastern Europe.

The investment grade and emerging market loan markets have had a difficult time already this year, but the outlook has undoubtedly grown bleaker. Britain’s decision to leave the European Union has sent a shockwave through the markets that was simply too large to quickly comprehend.

European bank debt was thrashed in the wake of the UK's vote to leave the European Union on Friday morning. And though the panic hasn't matched that seen in February, when concerns on AT1 coupon payments triggered a selloff, the worst may be yet to come as markets face unprecedented governmental change.