UK gilt yields fall to new record low on Brexit, 10-year yield dip below 1 pct for first time

The UK gilts yield fell to an all-time low on Monday after Britain has voted to leave the European Union after 43 years in an astonishing referendum that threatens the breakup of the nation. Also, rising possibilities of further policy easing from the Bank of England drove investors towards safe-haven buying.

The yield on the benchmark 10-year gilts fell more than 14-1/2 basis points to 0.944 percent, yield on super-long 40-year bonds dipped nearly 13 basis points to 1.602 percent, yield on 30-year gilt tumbled 14 basis points to 1.806 percent and the yield on short-term 2-year note slid 13 basis points to 0.143 percent by 09:15 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.

In addition, The Britain finance minister Osborne said that market volatility will continue and an economy will have to adjust in the uncertain circumstances. Said the UK growth has been robust and contingency plans are in place, the on-going contact with BOE governor Carney have agreed with further plans.

He further added that they are in touch with EU finance ministers and article 50 should only be triggered when UK has clear view on relations with EU. Said need to address impacts on public finances and no one should doubt UK resolve to maintain fiscal stability, completely focussed on task as chancellor. Will address Tory party shake-up and his role in it over the coming days and no emergency Budget at this time and there will be need for action in the Autumn to address public finances, he added.

Lastly, Britain's decision to leave the European Union could drive the economy into recession and will force the Bank of England to ease its already ultra-loose monetary policy further, a Reuters poll of economists found on Friday.

Meanwhile, EUR/GBP is higher near 0.8300 and seen eyeing Friday's post-Brexit and 27-month high at 0.8315/20. Meanwhile, cable is down almost 2.8 percent on the day at around 1.3305/10 as market rate cut forecasts weigh on the currency. The FTSE 100 trading down 0.79 percent at 6,090 by 09:15 GMT.