Weekly Bond Update: Portfolios rebound from Brexit

In line with risk profiles, the core portfolio recorded only minor losses, while the subsequent comeback in most risk assets failed to completely erase losses for the most risky bets in the opportunistic portfolio.

This is true for the most part on average, though – and this is just another reminder to spread your bets – there have been both sunny stories and more turbulent ones below the aggregate surface.

Predictably enough, Thomas Cook bonds were to be found among the latter post-Brexit as the economic and political uncertainty saw investors fleeing UK assets in general and consumer discretionaries such as travel agencies in particular. 

This reaction is out of line with our view that a market-friendly exit deal remains highly likely, and the real long-term economic impact will thus prove limited. For this reason, we also followed up our succesful Volkswagen trade with a bet on embattled UK financials in the form of Royal Bank of Scotland subordinated bonds.

One of the positive side effects of the Brexit has been a complete withdrawal of any interest rate hike expectations in the US. Consquently, emerging market currencies have strengthened, including in Brazil where investor optimism continues to improve following the ousting of president Dilma Rousseff earlier this year. 

The largest bank of the upcoming Olympic Games host nation, Banco do Brasil, has seen its bonds appreciate in value, despite the turmoil in Europe.

For more on the individual and portfolio performance of our #SaxoStrats Corporate Bonds trade views, please find the updated monthly presentation below.