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Brexit’s danger to bank bonds in EU and UK

We have all had it by discussing all of the issues that come with Brexit. There have been more delays in the final decision on Brexit than we can account for and, at this point, the people cannot help but wonder whether it even poes poses a risk to anyone anymore. Some seem to think that the Parliament will simply keep pushing the deadline away forever, with EU being okay with it, and that the UK will never really leave Europe, getting to stay within the limbo forever, without really facing the consequences. Yet, as humourous as that outcome would be (at least according to what the internet finds to be humorous nowadays), it is not a possible outcome. There are deadlines, and these deadlines need to be met. The UK needs to make a decision on Brexit and that is that. Although there is one positive aspect of the whole long term debacle that Britain has found itself in. The fact that we have been given enough time to observe the economic fluctuations and start making more accurate predictions as to what might take place, what might be affected with Brexit going through, is something we should appreciate. After all, now can precisely predicting how atrocious the effects will be on the EU and the UK. And one of the most terrifying things that are going to be happening, is the effect on the bank bonds and even the safe haven bonds and related markets. So what is actually going to be happening, why should this bother you and what should the beginner UK bond buyer be thinking of?

EU bank bonds

The Financial times has spoken about the dangerous effect that Brexit was having on European Bank bonds, already in 2018. And yet, ever since then, fewer people have been paying attention to the issues that are associated with Brexit. Yet, this is one of the most important subjects to be considering right now, especially considering the fact that Bonds should be considered as one of the safest financial assets that an investor could be purchasing.

In the seemingly distant 2018, the fears of no deal Brexit were causing many people to start losing faith in the EU bank bonds. The reason was simple - many believed that the no deal Brexit would cause these loans do not comply with EU regulation anymore. With most of the bonds having been created under British law, what you get is chaos as many of the bonds will now try to switch to local laws. And all of this was impending for 100 billion Euros worth of bonds in 2018. Although the fears at the time were quite intense, things calmed down as the Brexit negotiations went on and more people started believing that a no deal Brexit would not be happening.

Fast forward to today, when we have a fast approaching political crisis that is Brexit dominating more and more of our minds. The closer we get to the deadline, the more likely it seems that Brtain will be getting the worst deal of all, the No Deal Brexit. This time around the fears are driving more financial managers to doubt the bonds in their current form. And while the panic has yet to go into full swing, it seems that we are getting closer, by the day, to a situation which does not seem to have much of a solution. The EU bonds market is coming to a crisis, and all this thanks to the never-ending Brexit.

Increasing interest in safe have bonds

Combine this with a recent increase of interest in the safe-haven bonds in EU that has been experienced by the London investors. The increase in interest has been coinciding with an increase in yield. The yield still remains in the negative but has become higher than its 21 and a half years long low. This is something to be excited about for the investors, as this gives them a chance for a relatively stable investment, even if not one that will be making them much money in the future. But exciting as this news is, what we should be looking at is a step beyond “good news”.

No deal Brexit is once again becoming a threat, one that is bigger that has ever been before. After all, with the current political climate in the UK, with no Brexit deal being acceptable to the leaders of the country, it seems like the UK is about to jump off a very high cliff. The increase in safe-haven bond returns and interest in them means only that investors are starting to trust the rest of the possible investments way less. The cliff is fast approaching, and the effects will be rippling throughout the markets, especially through the bond markets.

The danger of to the bond

The primary danger is the repeat of the fears that many investors had to face in 2018, regarding the issues of law applied to the loan bonds they had purchased. While the legal language might have to be rewritten for some of them, the investors will be facing certain problems. Local laws differ for each country, relating to bonds. Some who are in France would not care while those who are in Portugal might find the laws to be a little too much and not something they want to deal with. Combine this fact with the fees for applying new laws (which some of the banks might be taking on themselves, but not all of them), and all you get is a bunch of investors losing money on the investments they thought were some of the safest they have ever made. The scramble for alternative safe haven bonds might start and might provide some safety for a part of the investor population, but there are not enough of those to be able to support the entirety of them. This is a dangerous situation for all bond investors who have been operating on the EU and UK markets, and it is something that should be considered. After all, the bond market affects all of us in one way or another.

EU bank bonds

The Financial times has spoken about the dangerous effect that Brexit was having on European Bank bonds, already in 2018. And yet, ever since then, fewer people have been paying attention to the issues that are associated with Brexit. Yet, this is one of the most important subjects to be considering right now, especially considering the fact that Bonds should be considered as one of the safest financial asset that an investor could be purchasing.

In the seemingly distant 2018, the fears of no deal Brexit were causing many people to start losing faith in the EU bank bonds. THe reason was simple - many believed that the no deal Brexit would cause these laons to not comply with EU regulation anymore. With most of the bonds having been created under British law, what you get is chaos as many of the bonds will now try to switch to local laws. And all of this was impeding for 100 billion Euros worth of bonds in 2018. Although, the fears at the time were quite intense, things calmed down as the Brexit negotiations went on and more people started believing that a no deal Brexit would not be happening.

Fast forward to today, when we have a fast approaching political crises that is Brexit domnating more and more of our minds. The closer we get to the deadline, the more likely it seems that Brtain will be getting the worst deal of all, the No Deal Brexit. This time around the fears are driving more financial maangers to doubt the bonds in their current form. And while panic has yet to go into full swing, it seems that we are getting closer, by the day, to a situation which does not seem to have much of a solution. The EU bonds market is coming to a crisis, and all this thanks to the never ending Brexit.

Increasing interest in safe have bonds

Combine this with a recent increase of interest in the safe-haven bonds in EU tha has been expreinced by the London investors. The increase in interest has been coincinging with an increase in yield. The yield still remains in the negative, but has become higher than its 21 and a half years long low. This is something to be excited about for the investors, as this gives them a chacnce for a relatively stable investment, even if not one that will be making them much money in the future. But exciting as these news are, what we should be looking at is a step beyond “good news”.

No deal brexit is once again becoming a threat, one that is bigger that has ever been before. After all, with the current political climate in the UK, with no Brexit deal being acceptable to the leaders of the country, it seems like UK is about to jump of a very high cliff. The increase in safe haven bond returns and interest in them means only that investors are starting to trust the rest of the possible investments way less. The cliff is fast approaching, and the effects will be rippling throughout the markets, especially through the bond markets.

The danger of to the bond

The primary danger is the repeat of the fears that many investors had to face in 2018, regarding the issues of law applied to the loan bonds they had purchased. While the legal language might have to be rewritten for some of them, the investors will be facing certain problems. Local laws differ for each country, relating to bonds. Some who are in france would not care while those who are in Portugal might find the laws to be a little too much and not something they want to deal with. Combine this fact with the fees for applying new laws (which some of the banks might be taking on themselves, but not all of them), and all you get is a bunch of investors losing money on the investments they thought were some of the safest they have ever made. The scramble for alternative safe haven bonds might start and might provide some safety for a part of the investor population, but there are not enough of those to be able to support the entirety of them. This is a dangerous situation for all bond invesstors who hav been operating on the EU and UK markets, and it is something that should be considered. After all, the bond market affects all of us in one way or another.

 

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Konstantin Rabin

Konstantin Rabin

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