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Shock Waves Ripple Through Credit Markets After U.K. Brexit Vote 

June 24, 2016

Bloomberg News

Shock waves reverberated through credit markets after the U.K. voted to quit the European Union. Measures of risk for corporate bonds and money markets surged. The Markit iTraxx Europe Index of credit-default swaps insuring investment-grade corporate bonds rose by the most since 2008, according to prices compiled by Bloomberg. A gauge of where bank borrowing costs will be in the months ahead, known as the FRA/OIS spread, hit the most extreme level since 2012 and a key rate of the cost for banks to convert euro cash flows into dollars increased.

Britain’s decision took investors by surprise after financial markets had priced in a vote to remain in the 28-nation bloc and polls showed it was too close to call. The Bank of England said on Friday it will take all necessary steps to ensure stability, while central banks across the world pledged to take action as needed to avert any breakdown in financial-market liquidity. Prime Minister David Cameron said he will resign.

“The market was not prepared for this,” said Geraud Charpin, a portfolio manager at BlueBay Asset Management in London, which oversees $58 billion. “It’s come as a shock. People are scrambling.”

More than $19.7 billion of protection on the investment-grade benchmark changed hands on Friday, almost five times an average full day, Bloomberg data show. Read more

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