Pricing In ‘Brexit’ Risks to Bonds and Fixed Income

The transcript discusses the challenges faced by Carney in maintaining neutrality, especially in the context of political events like the Scottish referendum. It explores the potential market reactions to Brexit, particularly in the bond and FX markets, and the implications for various asset classes. The discussion extends to the potential impact of Brexit on the euro area, highlighting channels of contagion and the role of the ECB. Finally, the conversation touches on the topic of negative interest rates and the Bank of England's policy options in the event of a Brexit-induced shock.

What challenge does Carney face when discussing Brexit?

• Avoiding media attention

• Maintaining neutrality

• Supporting one side

• Predicting economic outcomes

How has the FX market reacted to the Brexit story?

• Sterling has strengthened

• Bond yields have decreased

• Sterling has tumbled

• Interest rates have risen

What is one potential impact of Brexit on the UK economy?

• Increase in UK growth by 1%

• Decrease in UK growth by 1%

• Stability in UK growth

• Increase in UK exports

What might the ECB do in response to Brexit-related market issues?

• Ignore the situation

• Reduce bond purchases

• Start with verbal intervention

• Increase interest rates

What is a possible political consequence of Brexit in European countries?

• Decrease in political activity

• Rise of non-mainstream parties

• Strengthening of mainstream parties

• Unification of political views