The UK public’s decision to leave the European Union caught many in the banking community by surprise but most issuers got themselves to an advanced stage of their funding programmes in preparation for some lean months in the immediate aftermath of the UK’s referendum.
The European Investment Bank is more than 75% funded and hasn’t sold a trade since June 15, according to Dealogic. FMS-Wertmanagement has funded more than 72% of its programme and, also according to Dealogic, hasn’t issued since June 13.
While these issuers are undoubtedly ahead of schedule and have sufficient liquidity to comfortably survive a few months without tapping the capital markets, waiting may not be the most prudent option.
Though markets are still jittery, fundamentally nothing has yet changed. Conditions remain supportive, investors have plenty of cash to deploy and sentiment is optimistic, if not exactly buoyant.
While various Conservative hopefuls jockey for position, the damaging speculation about the nature of a post-Brexit world is likely to be limited. But come September, Britain will have a new prime minister and there will be no more delaying Article 50. When the field has cleared and Article 50 is triggered, the haggling will begin in earnest.
Funding officials will be in for a rude awakening if they return from a summer holiday expecting markets to be as healthy as they were when they left.
With each negotiation, speculation on the repercussions of one outcome or another will abound. The consequences for the economies of Europe and the UK could be drastic. The stakes are high and the outlook each day will be clouded by the potential for disastrous news.
This is the case even if the negotiations are reasonably amicable and harmonious. Should the EU pursue, as some believe it must, a punitive approach against the UK in order to discourage others from following suit, the fallout could be even more unpleasant.
And the trouble does not stop with the UK’s negotiations with the EU. The UK will soon have to begin negotiations with countries all over the world in order to develop its own series of highly complex trade agreements. The economic implications of the UK’s deals with China, India and the US could cause markets far more of a headache than they are currently experiencing.
Squirreling money away only works if you wait until winter comes before you go into hibernation.
With Bund yields plunging ever lower and Swiss debt negative out to 50 years, this may not feel like a golden window but there could well be worse to come. David Cameron has given markets a three month grace period. They should use it.