Benchmark U.S. Treasury yields followed U.K. yields in the red after key Cabinet officials resigned, putting Britain Prime Minister Theresa May’s Brexit deal in jeopardy.
The benchmark U.K. 10-year Gilt fell to 1.228, while in the U.S., the 10-year note went down to 3.101 and the 30-year note followed, heading lower to 3.353. The two-year note also ticked lower to 2.846, as did the five-year note to 2.926.
The news of the resignations came as May announced she garnered enough Cabinet support to move forward with a Brexit deal on Wednesday, effectively keeping the United Kingdom within the customs union of the European Union (EU) for an indefinite amount of time.
“I firmly believe that the draft withdrawal agreement was the best that could be negotiated,” said May. “The choices before us were difficult,” May added. “But the collective decision by Cabinet was that the government should agree the draft withdrawal agreement and the outlying political declaration.”
“This is a decisive step which enables us to move on and finalize the deal in the days ahead,” May added.
Per a CNBC report, the proposed 500-page deal will include commitments regarding UK citizens’ rights after Brexit takes place and a proposed 21-month transition period after Britain exits the EU on March 2019.
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With May’s purported approval from the Cabinet, the EU Commission was expected to make the draft publicly available and for the sake of brevity, a much shorter declaration that outlines future security and economic Britain relations with the EU. In addition, the remaining member states in the EU will discuss the possibility of planning an emergency summit this month to sign off on the deal.
Ultimately, it will come down to the backing by the Parliament, which the BBC reported could take place in early December. However, the latest resignations add a new twist to the ongoing Brexit saga.
Regardless of the outcome, analysts see rising benchmark yields on the horizon.
“In the event there is a transitional deal, and it passes the various political hurdles, we would expect U.K. yields to rise, and gilts to underperform global bonds, as short-term uncertainty is reduced,” said Mike Amey, head of sterling portfolio management at Pimco, in a note.
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