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We Almost Forgot About It

16 July 2019 by lberuti

It had not grabbed any headline for quite a while, but today Brexit came back with a vengeance. The pound slipped almost 1% to 1.24 against the US Dollar. That is the weakest it has been since the end of Q3 2017. It effectively weakened against all major currencies as many investors fear Brexit negotiations could turn more hostile. Ursula von der Leyen, who was later in the day confirmed as the EU Commission President, said she was ready for a further extension of the Brexit deadline “should more time be required for a good reason”, but both contenders to the UK Prime Minister position toughened their rhetoric in a debate yesterday and said the so-called backstop plan to avoid a hard border in Ireland, considered essential by the European Union, would need to be scrapped. Many think it only leaves two options: no-deal Brexit or no Brexit. Caution was obvious in the credit market, and the risk premia of UK names were marked wider across the board. The most affected sector was financials, and, as you can see on the above grapple, there was not a single British bank that ended the session tighter. Their 5-year CDS were indicated 5% wider across the board, from Lloyds’ (+2bps @ 46bps) to Barclays’ and RBS’ (+6bps @ 93bps).