The Brexit results come out tomorrow. I wrote an article for Seeking Alpha on some topics I had mentioned to clients over the past week. The odds were from 5-6 hours ago, and the Brexit odds have dropped to 16%, but the concept holds. I think there is still a lot of money waiting for the official decision, and the general game plan for the “No Brexit” and “Brexit” scenarios still apply.
• The markets currently think Brexit is only a 21% probability event. The markets will have priced a commensurate amount of Brexit risk in the interest rate markets.
• The two main risks to US interest rates of a Brexit are: (1) LIBOR-Fed Funds spread widens, and (2) there is global weakness or recession. Both of these things occurred in 2007-2008, so traders may be looking at that as a comparison.
• Knowing what is currently priced into the interest rate markets will help you prepare for the Brexit decision later this week.
[I go on to discuss the US interest rate risks for Brexit and the trading game plan once a decision becomes clear. To read the rest of the article, go to seekingalpha.com]