Article / 08 June 2016 at 8:17 GMT

From the Floor: Brexit stay win will see 'massive' bonds unwinding

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  • 10-year bunds hit all-time low yield of 4.8 basis points
  • Investors heading into bonds to mitigate Brexit risk — Fasdal
  • A 'Remain' vote would see "massive unwinding" in bonds after June 23 — Fasdal
  • Brent rise above $51/barrel helping to spur equities — Garnry
  • Oil market still capped with no sign of "fireworks so far" — Hansen
  • Gold continues to shoot higher with $1,264/oz in view — Hansen
  • Clinton gets nomination but expect market impact only after Brexit — Hardy
  • Chinese trade data shows 4.1% exports slide, signalling 


By Martin O'Rourke

Safe money

Where would you put your money when a major event risk is looming? Gold is one obvious contender and so too should be the dollar, but bonds have seen a flood of money, sending the 10-year German bund yield to an all-time low of 4.8 basis points.

"This is beginning to look really ugly and a lot of investors asked me yesterday, why would you invest in bonds at such a low yield", says fixed income desk head Simon Fasdal. "This is all about last-minute positioning towards a Brexit, especially from funds and pension managers ".

"They need to position in other assets than equities and cash", says Fasdal, speaking live from Copenhagen. "It is quite expensive and perhaps unwise positioning but also necessary to preserve capital in the event of all-out risk off if there is a 'Leave' vote. This is their fear".

"The unwinding of this position will not happen on any poll", says Fasdal. "No poll will be enough to push an unwinding but if we have a Stay vote, there will be a massive unwinding".

"The risk in bunds is to the downside and it is pretty high", he adds. "I'm beginning to look for establishing shorts either outright or with options".

German 10-year bund yield slides to all-time low

 Source: Bloomberg, Saxo Bank

Brexit shadow

Brexit's shadow is extending far and wide with 15 days to go to the vote and is likely to stymie any attempt by the dollar to rally on the back of Hilary Clinton's all-but-certain securing of the Democratic presidential nomination for the run in to the November 8 election.

"We'll start to see some market impact only after the Brexit is done", says Saxo Bank's head of forex strategy John J Hardy. "The expectation is that she will win in November now that she has the all clear".

Dollar continues to trade sideways, says Hardy, edging slightly lower against the yen and is likely to continue that way at least until the Federal Open Market Committee meeting next week.

"FOMC and Brexit are hanging over the markets", says Saxo Bank's forex chief.

Pivotal June

Brexit will of course be done and dusted on June 23 and Saxo Bank's head of equities strategy Peter Garnry feels this month is signalling a turning point in the global equities scene with the S&P 500 closing in on a 10-month high.

"The oil rally is playing a very important part in this as Brent pushes above $51/barrel to the highest since October", says Garnry. "It's very difficult to ignore this strong momentum in oil prices and if oil were to climb a bit higher it would have a meaningful impact on inflation lifting nominal growth and help support the Fed's rate path".

Garny is increasing his energy exposure with a potential setup on Subsea 7 already published on

Commodities push

Can oil go much higher though? Saxo Bank's head of commodities strategy Ole Hansen is not convinced although he says "there is no doubt that we have momentum across many commodity markets".

Hansen points out that US benchmark WTI may sit nicely above $50/b but is yet to take out that next resistance at $50.90/b. "There have been no fireworks so far", he says.

Brent was at $51.53/b at 0655 GMT. WTI was at $50.43/b.

Hansen is much more enthused on gold which has already recovered more than half the losses it suffered through May. "Event risk and the weaker dollar is helping gold to march higher helping it to reclaim half the selloff in a few days".

"The focus is now on the $1,264/oz retracement level if we make it above $1,252/oz", he says. "A move above $1.264/oz will start the speculation about new highs".

"Despite China not buying any gold during May, there was enough demand around and now funds are scrambling to rebuild long positions having cut positions by one third over the last week", he says, from the Copenhagen floor.

Gold is pushing higher


 Source: Bloomberg

And finally....

China's trade data showed a 4.1% slide in exports for May, signalling that "external demand is not providing much support for the Chinese economy", says Christoffer Moltke-Leth from Saxo Bank's Singapore hub. The Shanghai Composite Index subsequently edged lower although the print was largely in line with expectations.

And while Japan is more or less confirmed to have moved into a technical recession, the ongoing ramifications of the Kumimoto earthquake earlier this year are reckoned to still be a drag on the economy, so FX markets were actually cheered by an annualised 1.9% GDP reading for the first quarter, ahead of 1.7% expected.


 All eyes are on London as the EU referendum vote nears. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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