Brexit

Under normal circumstances the arrival of the European Central Bank as a buyer of bonds in a particular market would be greeted with euphoria, tightening spreads and a bulging pipeline of deals. However, the phalanx of political risks threatening financial markets this month, chief among them the UK’s Brexit referendum, means the corporate bond market is braced for a rocky June.

As the UK’s EU referendum approaches, associated uncertainty has seen risk in the sterling corporate bond market rise, with liquidity taking a blow.

Deutsche Börse and the London Stock Exchange Group (LSE) have confirmed that they will hold a merger vote after the UK’s referendum on European Union membership on June 23, having previously said that Brexit would harm rival US bids, but not their own plans.

International institutional investors showed no signs of ‘Brexit’ jitters this week as the last of the sovereign's syndication before the European Union referendum drew a record book of more than £15bn.

Leaving the EU would harm the UK, Europe and the capital markets of both. There. We’ve said it even if you won't.

The prospect of the UK voting to leave the European Union has become the foremost focus of fund managers and volatility traders, even as the latest poll on Brexit gave the ‘Remain’ campaign an 18 point lead over ‘Leave’ — prompting the pound to rally to its highest point against the dollar since May 3.

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Moody’s said in a report released on Wednesday that the UK leaving the European Union would be credit-negative “for most UK-based companies”.

A vote by the United Kingdom to leave the European Union would entail a host of negative consequences for the derivatives market, according to Allen & Overy lawyers. The concerns include a deterioration of counterparty creditworthiness, changes in mark-to-market exposure and a decline in the value of UK linked collateral.

The Bank of England has raised its countercyclical buffer in response to the UK’s looming European Union referendum, as it tries to ensure banks will continue to lend in the event of a ‘Brexit’ vote.

Heightened talk around Brexit is adding to the pressure on UK credit spreads and, combined with European Central Bank promises of an investment grade corporate bond purchase programme, causing British names to underperform their eurozone peers. But market participants say this presents a buying opportunity as a reversal could follow.

The same benign financing conditions that propelled global M&A volume to a post-crisis record in 2015 are in place for UK blue chip companies this year. But treasurers are adopting a cautious approach ahead of the EU vote, writes Ross Lancaster