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By Daniel Stanton, Takahiro Okamoto, Adam Parry and HeleneDurand
LONDON/TOKYO/SINGAPORE, June 24 (IFR) - UK bank names cameunder pressure in credit markets in early trading after the UKvoted to leave the European Union, but there were signs thatbroader financial markets were stabilizing as the sessioncontinued on Friday morning.
The pound plunged nearly 12% to hit its lowest level againstthe dollar since 1985, but has since bounced 4.5% off the lows.Sterling at one stage had shed over 8% against the euro, whilethe euro fell 4.5% against the Greenback, its biggest drop sincethe advent of the single currency.
In credit markets a knee-jerk reaction saw synthetic indicesgap out on the open before retracing a portion of those moves,leaving the iTraxx Main investment grade index 18bp wider, theCrossover out 75bp and the Senior Financials wider by 30bp.
UK names were hardest hit. Barclays five-year senior bondsin euros have settled around 30bp wider versus mid-swaps at plus170bp, but five-year CDS is still up 35% at 135bp. It is asimilar story for other UK names with RBS some 30bp wider incash terms, compared to European giants Deutsche Bank and BNPParibas, for instance, which are only 5-10bp wider.
Tier 2 paper widened up to 100bp before rallying back.HSBC's 3.125% June 2028s hit 310bp over mid-swaps but had comein to 260bp over by mid-morning. That deal closed Thursdayaround swaps plus 230bp.
The rout spread to other bank capital bonds, hitting theAdditional Tier 1 market particularly hard. A BBVA 8.875% deallost almost seven points before bouncing back above 97.00, stillfive points lower on the day.
DRAMATIC TRADING IN ASIA
As the session progressed in Asia, the odds of a victory forthe Leave camp increased steadily, exacerbating marketmovements, until the final result showed 51.9% had voted toleave the EU.
FTSE futures were down 3% at 2am, but that had extended to afall of 8.6% by the time the final result was declared.
The FTSE is 4.7% lower mid-morning on Friday, although thatis more than 4% off the session lows. Ten-year US Treasuryyields similarly touched a low of 1.405% as the risk-offsentiment grew but are now back at 1.54%.
Markets endured dramatic moves in Asia as the countcontinued, with USD/JPY at one point in free-fall to 99.00. WhenBritish broadcasters ITV and BBC called the referendum resultfor Leave, JGB futures soared to a record high while the 10-yearbenchmark yield tumbled to a record low of -0.215%.
Japan's stock index slumped to the lowest level sinceOctober 2014, losing 7.9% and causing circuit breakers to kickin for index futures.
A trader at a big Japanese bank said the outcome of the voteitself was not important, but the chief concern was whether aBrexit would cause the European economy to slow and hold backthe Chinese economy, which would then affect emerging economies.
The overnight indexed swaps market is currently pricing in a50% chance the Bank of England will cut rates in July and closeto a 100% probability of a rate cut by year-end. (Reporting by Takahiro Okamoto, Daniel Stanton, Helene Durand,Adam Parry, editing by Vincent Baby, Alex Chambers, JulianBaker)
Barclays (BARC)
