THE departure of Britain from the EU affects a lot more than the London markets. It has driven a risk-off reaction in the European bond markets, which were the focus of concern during the crisis of 2011-2012. In the aftermath of the shock result, the German 10-year bond yields fell to a record low of minus 0.15%, according to Jim Leaviss of M&G, the fund management group. Although yields have bounced back to 0.09%, this is still an 18 basis point fall on the day. But Italian, Spanish, Portuguese and Greek bond yields have all risen on the news. As a result the spread between Italian/Spanish and German bond yields has widened by a quarter of a point; Portugal has widened over Germany by almost a third; and Greek yields by more than a point. Ewen Cameron Watt of BlackRock, the fund management group, says that further euro zone integration looks less likely - bad news for peropheral countries. Why was this? The British news raised questions about the stability of the euro zone and about the electoral appeal of populist movements such as the one that delivered a Brexit vote. That will be bad news for Mario Draghi, the ECB president, who is widely credited with seeing off the worst of the euro crisis.

In Britain itself, 10-year gilt yields have fallen by more than a quarter of a point since yesterday to 1.09%. This is not a reflection of confidence in the British model (S&P indicates that it may cut the credit rating) but in the belief that the Bank of England may cut rates in July (a 50/50 chance, according to Mr Leaviss), and in the expectation that British economic activity will slow. Similarly, the big fall in Treasury bond yields reflected the view that the Federal Reserve will be slow to push up rates, if it does at all.

The latest market action shows the danger in believing, as many did at the start of the year, that bond yields were bound to rise. And spare a thought for pension funds which see the value of their equity holdings fall while the value of their liabilities (discounted by bond yields) has risen. The UK corporate pension deficit has widened by £80 billion overnight or 10 times the annual EU budget contribution - a financial own goal on a spectacular scale.

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