Part A: Financial market fragility

Chart A.1 Risky asset prices and government bond yields fell across advanced economies following the outcome of the EU referendum Changes in equity indices, investment-grade corporate bond spreads and ten-year government bond yields since the December 2015 Report Sources: Bank of America Merrill Lynch Global Research, Bloomberg, Thomson Reuters Datastream and Bank calculations. Denominated in units of local currency. (Option-adjusted spreads. The US dollar series refers to US dollar-denominated bonds issued in the US domestic market, while the sterling and euro series refer to bonds issued in domestic or eurobond markets in the respective currencies. Government bond yields to maturity. Companies are categorised using annual financial accounts data on their geographic revenue breakdown. UK domestically focused companies are defined as those generating at least 70% of their revenues in the United Kingdom.

Chart A.2 Sterling fell sharply as the referendum result became clear Sterling exchange rates Source: Bloomberg

Chart A.3 UK equity markets fell sharply following the referendum, with domestically focused companies particularly affected Changes in UK equity prices since the December 2015 Report(a) Sources: Bloomberg, Thomson Reuters Datastream and Bank calculations. Denominated in units of local currency. Companies are categorised using annual financial accounts data on their geographic revenue breakdown. UK domestically focused companies are defined as those generating at least 70% of their revenues in the United Kingdom.

Chart A.4 There is increased uncertainty around the future level of financial market prices Term structure of implied volatility in equity markets(a)(b) Source: Bloomberg. (a) Series show annualised option-implied volatility, as derived from the prices of options at various maturities. (b) Euro Stoxx series refer to options on the Euro Stoxx 30 index.

Chart A.5 Depth in government bond markets fell in the run-up to, and following, the referendum Market depth in ten-year government bond markets(a) Sources: Brokertec, Eurex, ICEU and JPMorgan Chase & Co. Measured as the volume available to transact at the three best bid and ask prices, averaged daily. US series refers to the benchmark ten-year government bond in the cash market. UK and German series refer to the benchmark ten-year government bond in the respective futures markets.

Chart A.6 Bid-offer spreads in UK government bond markets increased in the lead up to the referendum Bid-offer spreads in UK government bond markets(a) Sources: Bloomberg and Bank calculations. (a) Series show difference in end-of-day bid and ask yields, averaged over three gilts with maturities of around five, ten and 30 years.