UK

The covered bond market reacted stoically to the surprising outcome of the UK’s referendum to leave the European Union with the primary market expected to restart in two weeks.

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 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.

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.

The UK’s shock decision to leave the European Union has left most of Asia reeling with the region’s major currencies and stock indices all coming under severe pressure. But if there is one country that can handle the negativity better than the others, it will be China.

Asian markets went to sleep on Thursday confident that the UK would still be part of the European Union the following morning and that business would go back to normal. But the UK’s public defied expectations and voted to leave the EU, forcing Asia bankers to completely rethink their plans.

The UK’s decision to quit the EU has dealt an immediate hit to currencies, credit and equities, but also puts key components of the European derivative market in doubt.

Capital markets have been hit by a cataclysm, the worst political shock since 11 September 2001 — though the immediate effects on financial markets may not be as grave as those of the 2008 financial crisis, because the solvency of banks is not in question.

Despite the carnage in UK and European bank shares, the bosses of major investment banks have reassured staff that immediate changes won’t follow. But recruitment industry sources predict the opposite, with one headhunter citing client plans to move 37,000 jobs to countries that plan to stay in the European Union.

Emerging market bankers called Britain’s decision to leave the EU on Friday "madness" and in line with the broader global market, EM credit has lost all the gains it made last week.

European credit spreads enjoyed a unanimous rally on Thursday as the odds of the UK leaving the European Union receded.

Market indicators suggest the UK will vote on Thursday to remain part of the European Union, with riskier assets outperforming safe haven instruments — meaning the public sector bond market could reopen next week.