A new alarming disorder has been spreading across the world’s financial markets like wildfire following the UK’s decision to leave the European Union. The Brexit syndrome is a term coined by market experts that is used to explain a wave of panic among investors, massive risk aversion, and a global stampede to safe-harbor assets.
Among financial instruments hit the most by Brexit are public debt securities sinking deeper and deeper to new historic lows. To name a few, the yield on Japan’s 20-year government bonds has fallen to zero for the first time in history, whereas shorter-term bonds are already trading in negative territory. The economic health of European nations has clearly suffered the hardest blow from the outcome of the British referendum. The entire yield curve for Swiss bonds with maturities up to 50 years has turned negative. The financial performance of Germany and the UK also seems to be setting new dismal records. The collapse in the foreign exchange market continues to unfold amid the fallout from Britain’s momentous vote to exit the EU. The pound sterling plummeted to a 31-year low against the US dollar overnight. Panic became even more intense after it was revealed that three of Britain’s major real-estate funds suspended their dealings in the aftermath of the Leave decision. The management reported a lack of money to pay to their clients, suspending redemptions and saying the funds were now starting to sell their property.
The situation looks especially dire as many experts recall the beginning of the 2008 financial crash. One can see a clear parallel with the closure of two commercial property funds owned by Bear Stearns. At present, the UK’s real estate market is facing a severe price slump. Given the country’s property bubble and a huge volume of investments and mortgage loans on the side of banks, the whole British financial sector is currently under threat.
