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The End Of The Honey Moon?

17 December 2019 by lberuti

Since it has become fairly obvious that the Tory Party would gain a large majority in the Commons, UK risk has been on a roll. The posterchild of this really strong run was LLOYDSGR ( Lloyds Banking Group Plc ), which saw its 5-year risk premium halved between October 8th and yesterday as it went from 91bps to 45bps. But today that move came to a halt. Boris Johnson, the UK Prime Minister, announced he will not attend the World Economic Forum in Davos next year, nor will any of his ministers. He is branding his administration as “the people’s government”, which obviously does not include rubbing shoulders with the global elite at a Swiss ski resort. He also said that his agenda is very much set in delivering Brexit within the timeframe set while he was on the campaign trail. The UK exit from the EU will be voted before the end of January 2020, and it will be effective before the end of next year, whether a trade deal between the two blocks has been reached or not. Many thought that the Conservatives’ 80-seat majority would allow him to take a patient approach to negotiate the best possible deal. They were caught off guard and, in their mind, it certainly raised the probability of a no-deal Brexit. They sent the Pound tumbling at pushed most UK risk premia wider. For instance, LLOYDSGR’s 5-year CDS widened 4bps to 49bps.