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Hope this isn't too simple a question.

I read an article that stated that the UK government and EU have reached a draft agreement for a Brexit deal, leading to the following market movements after the announcement.

1) GBP rose against USD 2) Yields increased for 10-year British government bonds (i.e bond prices fell)

The first point seems fairly predictable, but why would seemingly less investment risk lead to a decline in bond prices? Could this be more about British equities becoming more attractive relative to bonds due to less perceived risk?

Rfh
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  • Not sure what you mean by "less investment risk". Apparently the bond market disagrees with you, as seen by the spread between risk premia between US and UK bonds. – Michael Nov 15 '18 at 19:09
  • Bond yields jump around for any number of reasons. It’s fairly rare that you can tell for sure what the cause was. – Brian Romanchuk Nov 15 '18 at 21:26
  • @Michael Thank you for your input. What I meant was that less uncertainty (i.e. a Brexit deal) should in theory mean less risk for UK bonds. – Rfh Nov 16 '18 at 00:38
  • @BrianRomanchuk That makes sense. The markets are certainly complicated. Thanks for the answer! – Rfh Nov 16 '18 at 00:39

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