JPMor­gan As­set Man­age­ment says ‘Brexit’ would boost UK bonds

The Pak Banker - - MARKETS/SPORTS -

Hold­ers of the U.K.'s govern­ment bonds need not fear the prospect of Bri­tain vot­ing to leave the Euro­pean Union as they stand to ben­e­fit from any eco­nomic woes that fol­low the vote, ac­cord­ing to one of the world's largest money man­agers.

"If a 'Brexit' hap­pened it would be very likely the Bank of Eng­land would ease pol­icy again, ei­ther by cut­ting in­ter­est rates or more QE, gilts are very much a ben­e­fi­ciary of that," Ni­cholas Gart­side, Lon­don-based chief in­vest­ment of­fi­cer for fixed-in­come at JPMor­gan As­set Man­age­ment, which over­sees more than $1.7 tril­lion, said in an in­ter­view on Bloomberg Tele­vi­sion's "Count­down" with Anna Ed­wards. "You also have a sce­nario where you've got a lot more eco- nomic un­cer­tainty. So, again, gilts are a ben­e­fi­ciary of that."

Gilts ex­tended a rally on Mon­day that has de­liv­ered the se­cond-big­gest re­turns among de­vel­oped na­tions this year. The pound mean­while has taken the brunt of in­vestor un­easi­ness about the pos­si­bil­ity of Bri­tain ex­it­ing the world's largest trad­ing bloc fol­low­ing the June 23 vote, with its 4 per­cent against the dol­lar this year the worst among 16 ma­jor cur­ren­cies.

The 10-year gilt yield dropped two ba­sis points, or 0.02 per­cent­age point, to 1.47 per­cent as of 10:36 a.m. Lon­don time. The 2 per­cent se­cu­rity due in Septem­ber 2025 rose 0.14, or 1.40 pounds per 1,000-pound ($1,415) face amount, to 104.695. The yield touched 1.226 per­cent on Feb. 11, the low­est since Bloomberg be­gan col­lect­ing the data in 1989.

A U.K. exit is far from cer­tain, with polls show­ing the out­come is hard to call. Bank of Eng­land of­fi­cials, in­clud­ing Gov­er­nor Mark Car­ney, will tes­tify at Par­lia­ment's Trea­sury Com­mit­tee on Tues­day on the eco­nomic and fi­nan­cial costs and ben­e­fits of EU mem­ber­ship.

"Gilt yields head prob­a­bly through 1 per­cent" af­ter a U.K. exit, Gart­side said. "We look at the polls at the mo­ment, it's ar­guably a nar­row ma­jor­ity for the "In" camp, and one thing we'll fol­low is the polls very very closely. The se­cond point is it does feel a long way away un­til June 23. We're in the phony war stage re­ally, I sus­pect as we get a lot closer to the 23rd the de­bate will in­ten­sify. What in­vestors should pre­pare for is a lot more volatil­ity."

Bri­tain's sov­er­eign debt re­turned 4.26 per­cent this year through March 4, ac­cord­ing to the Bloomberg World Bond In­dexes.

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