Brexit Ends The Reflation Trade

The U.K. vote is a major blow to the cause of European integration. Fears that "others are next" are likely to put upward pressure on peripheral European bond yields, potentially setting the stage for a self-fulfilling debt crisis. Risk assets are likely to recover some of today's losses over the coming trading days, but the risk to equity prices is now to the downside. Investors should assume a more cautious stance.