Analysts said it was precisely because of the uncertainty that yields were falling, pointing out the possibility of interest rate cuts from the Bank of England also played a part.
Highest UK default risk since 2013 as per CDS market, but what is in a name anyway? pic.twitter.com/neTujSxFNF— Martin Enlund 🦆🚁 (@enlundm) June 27, 2016
Neil Williams, chief economist at Hermes Investment Management told City A.M.: "In the rating agencies' eyes, Brexit is putting the UK's credit worthiness under the spotlight. But the referendum outcome is only the latest chapter in what will prove to be a protracted story of lower-for-longer bond yields. "Brexit, and its likely ripple effects, is an added incentive for central banks to keep their liquidity taps on. "In short, despite ratings downgrades, with the UK's government debt being local-currency denominated and the Bank of England waiting in the wings, default risk in reality looks next to zero." Markets are now fully pricing in a cut to interest rates this summer – most likely in August – and Hargreaves Lansdown analysts said there was a 15 per cent chance governor Mark Carney would introduce negative interest rates this year. Read more: Trading suspended on Barclays and RBS shares "The gallop to buy government bonds at one level is quite understandable," added Russ Mould, investment director at AJ Bell. "Uncertainty about the economic and political outlook dominates and during such times investors tend to look for a haven." Bell pointed out, however, that a stubbornly weak – or volatile – pound could reduce the attractiveness of government debt to overseas buyers, lowering demand and pushing yields up. Moreover, if a new government abandons the relatively tight fiscal stance and decides to stimulate the economy, this could lead to higher inflation, meaning investors demand a better yield on government debt.