Indexing the Brexit

The central bank of England has said that the European Union referendum in June 2016 is the most significant near-term domestic risk to the country’s financial stability.  Because of its separate currency, Britain is one of the countries that could disassociate itself most easily from the EU.  It is a long time until June, and the question lingers: is this another Scotland situation with a heavy amount of press, but in which case, like Scotland, the U.K. will stay just where it is?

The “Brexit,” as it is being called, could have varying consequences, depending on the terms of a departure agreement.  Such terms would be negotiated after the vote.  To try and predict the outcome is sheer madness, as they say.  The decision will rely upon prevailing economics, future outlook, crowd sentimentality, and many other factors.

What can be observed from S&P Dow Jones Indices is the following.

Exhibit 1: Option-Adjusted Spread History–U.K. Investment-Grade Corporate Bond Indices

Source: S&P Dow Jones Indices LLC. Data as of March 28, 2016. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.

Source: S&P Dow Jones Indices LLC. Data as of March 28, 2016. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.

Source: S&P Dow Jones Indices LLC. Data as of March 28, 2016. Past performance is no guarantee of future results. Table is provided for illustrative purposes.

Source: S&P Dow Jones Indices LLC. Data as of March 28, 2016. Past performance is no guarantee of future results. Table is provided for illustrative purposes.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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