The name's Bond, Brexit Bond
There may be some investors and savers who do want to take a view on the negotiations and how they are likely to end though.
The Family Building Society launched a Brexit Bond in June – a deliberate play on the process and its impact on currency.
The Brexit Bond is a fixed term savings bond, offering a fixed interest rate of 1 per cent per annum plus a potential 2 per cent bonus at the end of the fixed term when it matures on 2 May 2019.
There are two versions – the Brexit Optimist Bond and the Brexit Pessimist Bond –which will pay a bonus to investors depending on the change to the pound to euro exchange rate between 28 March 2017, the day before Article 50 was triggered, and 29 March 2019, the date when the UK is due to exit the EU.
Keith Barber, director of business development at The Family Building Society, explains: “Our innovative Brexit Bond gives savers a clear choice; one pays a bonus if the pound falls against the euro, the other if the pound rises.
“Of course, we live in an uncertain world and there are many other things that affect the pound/euro exchange rate, not just the Brexit negotiations. This means Brexit may not be the dominant factor determining the exchange rate on 29 March 2019.”
He adds: “Irrespective of how savers voted in the referendum in June 2016, they now have a further opportunity to express their views of Brexit and how it may benefit their savings.”
Those who are more generally invested in fixed income and credit markets should not be lulled into a false sense of security by the apparent lack of volatility at the moment.
Nick Hayes, manager of the Axa WF Global Strategic Bonds predicts volatility will pick up during the negotiating period.
He points out for fixed income investors, “this could be a great opportunity to pick up both government bonds and credit assets when yields and/or credit spreads rise”.
“For the moment, however, we remain cautiously positioned with high cash levels, a short duration bias and to a lesser extent cautious on credit and high yield. We don't think yields need to rise that much to make fixed income attractive again, but for the moment it's about being patient, cautious and preferring short dated low volatile bonds,” he suggests.
