Yield on 10-year Gilts drops below 1.0% for first time ever

The yield on the benchmark 10-year Gilt dropped below 1.0% for the first time ever as markets continued to adjust to the new risk scenario following Brexit.

Despite some ‘market-chatter’ of a Brexit-lite and a natural tendency for markets to overreact, which would see Article 50 of the Lisbon not invoked, sterling assets continued to come under selling pressure, likely as a result of the non-negligible increase in uncertainty regarding the response of the different actors – Westminster and the main European capitals within the EU .

As of 12:12 BST the yield on the benchmark 10-year Gilt was lower by 12 basis points to 0.955% as cable lost 3.41% to 1.3207.

In parallel, the yield on similarly-dated US Treasury notes was down by eight basis points to 1.4766%, as Fed funds futures moved to price in a 7.2% probability of a 25 basis point interest rate cut by the US central bank when its rate-setters met on 21 September, according to the Chicago Mercantile Exchange's CME Fed Watch tool.

“The UK’s future relationship with the rest of the EU is far from clear given that the ‘Leave’ campaigners have not presented a unified vision,” Dominic Bryant at BNP Paribas said in a research note sent to clients.

“The adverse repercussions of Brexit are likely to be long lasting, in our view. The financial community tended to underestimate the anti-establishment shift in politics over the past few years, for which there is no easy and quick remedy. For Eurozone in particular last week’s event is equivalent to the opening of Pandora’s box, in our view. We believe that UK will remain a relative outperformer vs Eurozone, currency hedged,” JP Morgan strategist Mislav Matejka said in a research note sent to clients.

The DJ Stoxx 600 gauge of lenders’ shares was down by 6.96% to 120.10, on track for its worst two-day drop on record.