Fixed income investors are gearing up for more carnage should UK citizens vote to leave the European Union on Thursday. Yields on the 10-Year Treasury stand at 1.69 percent, compared to 1.85 percent on month ago. Germany’s 10-Year Bund yield stands at 0.061 percent, down from 0.16 a month ago. Yields on Japan’s 10-Year Treasury are currently in negative territory at minus 0.138 percent, compared to minus 0.098 a month ago. A bond’s yield and price moves in opposite directions. ‘One thing that investors are pretty sure of is if the vote is to leave, then central banks have to step in once again,’ said Anastasia Amoroso, global market strategist at JPMorgan Asset Management. ‘That likely means that Bank of England has to ease monetary policy and it probably means that the European Central Bank follows suit and that means that the Fed has no choice but to further delay their rate increases – that’s what’s being priced into the bond market right now.’ On Thursday, UK citizens will vote on whether to remain in the European Union, as many are frustrated with the regulation, fees and immigration policies that come with being a member of the EU. Though many experts warn of financial ruin for the UK following a Brexit, including job losses, lower economic growth and as billionaire George Soros said in an op-ed earlier this week, a 15 percent plus drop in the pound against the dollar. ‘The markets are completely paralyzed,’ she said. ‘They don’t quite know how to process this Brexit vote – it’s a completely binary outcome.’ While bond yields have been signaling trouble ahead, she said an interesting phenomenon has been forming in recent weeks, that could spell profit for savvy investors. ‘The ECB just started its corporate bond buying program [on June 8],’ she said, adding that the central bank may end up purchasing $8 billion worth of corporate bonds per month. In March, the ECB made headlines after announcing plans to raise its pace of monthly asset purchases to 80 billion euros, from 60 billion euros and add corporate bonds to its stimulus, aside from solely purchasing government bonds. The reason why I see an opportunity in investment grade and high yield credit is because spreads have widened out, but all of that has been Brexit related activity,’ she said, adding that the ECB’s actions should tighten spreads. The Bloomberg USD High Yield Corporate Bond Index rose 0.94 percent month-to-date and the Bloomberg USD Investment Grade Corporate Bond Index rose 1.04 percent since June 1. TheStreet’s Scott Gamm reports from Wall Street.
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