Global Fixed Income Strategy - October 2018

Monthly insights and updates from the Invesco Fixed Income team

Nov 1, 2018 | Invesco Fixed Income

With the March 29, 2019 Brexit deadline fast approaching, the UK still faces several hurdles on the path to finalizing and ratifying a Brexit deal with the European Union (EU). Rumored compromises indicate that the stalemate over the Irish border backstop is close to being resolved, clearing the way for a deal between the UK government and the EU, most likely in December. Nevertheless, the outcome of the subsequent parliamentary vote remains highly uncertain and will likely be a major source of volatility going forward. 

Failure to win Parliament’s approval could lead to significant instability, including a general election, a new referendum or both. Ultimately, we believe a “no deal” scenario will likely be avoided, and the removal of this tail risk will likely result in a bounce in UK asset prices. The Irish backstop, shifting demographics toward younger voters and a potential change in government may lead to a relatively “soft” Brexit. However, economically this would, in our view, be inferior to EU membership, capping the upside for UK assets.

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