Brexit — remainers have their day but threaten long delay

14/03/2019

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Bethany Payne, Portfolio Manager, Global Bonds, summarises the latest developments in the parliamentary votes on the Brexit withdrawal agreement, the terms by which the UK will leave the European Union, looking at their potential meaning, future outcomes and impact on the markets.



Sterling made gains last night as parliament voted against a no deal Brexit in any circumstance. While ruling out ‘no-deal’ was expected, the instruction was stronger than the government's intention, to rule out a no-deal Brexit on 29 March only. Sterling drew comfort from the removal of the risk to a no-deal Brexit on 29 March but looks like it is yet to price in upside from either Theresa May's deal eventually being passed or from a softer Brexit.

Today the UK parliament will have to vote on whether there should be an extension to Article 50 (which sets the UK’s current exit from Europe at 29 March) — and it is highly likely to vote for a delay. While the government’s preferred extension is a short, time-limited delay to 30 June for the purpose of passing a deal and its necessary legislation, this is still only a request that the UK can make to the European Union (EU). Each member state of the EU needs to agree to the extension and they are unlikely to do so unless the UK’s parliament can demonstrate a consensus for a future relationship or a clear change in purpose for the extension. This will need to be done by Wednesday 20 March, in time for the European Council meeting on 21 March, where any Article 50 extension will be discussed.

This opens the way for a third attempt at passing the meaningful vote (MV3) on or before 20 March as well as possible indicative votes on alternative future relationships. The EU has made it clear, that the final offer before meaningful vote 2 (MV2), where the UK was given added legal assurances that the backstop would be temporary, was the UK's second and last chance of getting any further concessions from the EU, for Theresa May's deal.

The only way now for Theresa May to get more support for her deal is the threat of a longer extension and possible referendum. Intriguingly, the EU’s response to the request for an extension, whichever way it goes, might actually help her deal to be passed. If the EU does not offer an extension, it will be good for her deal as it will likely pass given the limited choices on the table. If it offers a long extension, it is also potentially good for the deal, making it more likely to pass given the complications of the UK having to participate in the European Parliamentary elections in May, as well as the fact that a long period could dilute the chances of Brexit happening at all. While this may be enough of a threat to get support from the Eurosceptic wing of the Conservative party, Theresa May still needs significantly more votes to change a 149 defeat (as suffered on Tuesday this week) into a victory. We do not therefore rule out a fourth attempt — MV4 — at passing a meaningful vote after the EU council meeting, if the defeat margin is narrowing.

In summary, there are clearly many more twists and turns to come. As for the markets, for now they will continue to be volatile, especially given the political uncertainty in the coming week. Ultimately however, the possible outcomes look more positive for the UK and those in favour of retaining a constructive future relationship with the EU, something that is yet to be priced in by the markets.






These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Janus Henderson Horizon Total Return Bond Fund

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Janus Henderson Index-Linked Bond Fund

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  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

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Janus Henderson Institutional Long Dated Gilt Fund

Specific risks

  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

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Janus Henderson Institutional UK Gilt Fund

Specific risks

  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

Risk rating

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