HALISTER1: Pimco Sees ’Brexit’ Probability Up to 40%; Months of Uncertainty

Pimco Sees ’Brexit’ Probability Up to 40%; Months of Uncertainty

(Bloomberg) -- Irrespective of the twists and turns in debate over U.K.’s planned referendum on EU membership, uncertainty over the result is likely to weigh on U.K. markets for a good few months yet, Mike Amey, Pimco portfolio manager says in press release.
  • Assign up to 40% probability of “Brexit” even as Pimco assumes the U.K. will vote to remain in the EU
  • If the U.K. were to vote to leave, nature of separation would be key to market response
    • A confrontational separation will likely to lead to a more long-lasting response, with pressure on GBP and large U.K-listed companies with significant European activities
    • Would likely be bullish for gilts as any hope of an interest rate rise would be pushed even further back
    • Any gilt market weakness would likely be in longer-dated yields, where higher risk premium may come into the real yield
  • NOTE: Gilt market response to referendum splits investors while Citigroup sees different reactions at different times
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Michael Amey (Pacific Investment Management Co LLC)

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