Fair Value In Rates

Factoring no-deal and general election risks into GBP rates

April 2019

Peter Chatwell
Head of Macro Strategy
Mizuho International plc

  • No deal Brexit risks have shrunk, but may rise again unless the UK’s government is prepared to call a general election, allowing political mandates to be rebuilt around feasible Brexit outcomes. 
  • We look at what the indicative votes have taught us about the main parties, and consider the risks of a “no deal” Brexit and an early general election. We flagged GE risks in November 2018 and elaborate here. 
  • We consider how Conservative and Labour parties might position in a snap general election, and the impact sentiment in their grass-roots could have on the parliamentary parties. 
  • In GBP rates duration, we think the UK’s fiscal position is likely to deteriorate in order to stimulate the post-Brexit economy. This, and an unwind of FTQ, should allow long term yields to rise materially. 
  • We also consider implications for the term structure of GBP rates, expecting steepening to materialise. 


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