German bunds gain as UK leaves the EU after 43 years in the bloc

The German bunds continue to trade lower on Monday after Britain has voted to leave the European Union in a historic referendum.

On Friday, the benchmark German bund yield dropped below its recent record low of -0.04 percent to as low as -0.17 percent at one point. We foresee it to trade between -0.15 percent to -0.05 percent range in the short-term period.

The yield on the benchmark 10-year bonds, which moves inversely to its price fell 4-1/2 basis points to -0.096 percent, yield on super-long 30-year bonds dipped nearly 10 basis points to 0.339 percent and the yield on short-term 2-year note tumbled 1/2 basis points to -0.644 percent by 08:50 GMT.

On Friday, just over 72 percent of the UK population, the highest participation rate in a country-wide poll since 1992 have participated in a historic referendum to abandon the EU project for good, highly legitimising the 51.9 percent vs 48.1 percent in favour of leaving, result. This outcome flies in the face of the high implied probabilities, based on bookie’s betting odds, of staying in, is at odds with several of the final (pre-referendum) opinion poll findings, and indeed goes against the grain of the number of self-confessed EU-sceptics who are said to have reluctantly moved towards the ‘Stay’ camp.

Although the UK physical departure from the EU will not occur for at least a few years -  article 50 of the Lisbon Treaty must first be invoked - domestically, the UK faces a very uncertain l-t economic future, and a sea-change in the political landscape. PM Cameron is to step down within three months and is likely to take along with him, Chancellor Osborne. The face of the next Conservative ‘administration’ that will be responsible for negotiating the country’s divorce and orderly exit terms from the EU will be altered, as the centre of gravity of the Tory government moves decisively further to the right.

Moreover, we foresee that the UK’s relationship with ex-EU partners will be significantly altered. Beyond that, in view of Scotland’s 62 percent vote in favour of remaining in the EU, the SNP will offer another referendum on independence to Scotland, on the basis of Scotland having been yanked out of the EU against the will of its people. We see next time around the Scottish people will likely vote in favour of secession.

The German stock index DAX Index fell 1.06 percent at 9,455 by 08:50 GMT.