Bond manager Alix Stewart has sold out of some Scottish bank positions due to expected volatility created by the independence referendum.
Ms Stewart, who runs the £119m Schroders Corporate Bond fund, said she had “cut back” on some of her positions in Royal Bank of Scotland and Lloyds Banking Group ahead of the vote for independence, which takes place tomorrow.
“We had positions in credit default swaps but we have taken some risk down there,” Ms Stewart said.
“Fundamentally those two businesses have said they would re-domicile and there is a lot of uncertainty in those names.”
Ms Stewart said credit default swaps would be more volatile in part due to them being easier to trade.
The manager added she remained “comfortable” holding more conventional instruments, such as tier 2 or tier 1 bonds, but that her overall exposure to the banks had “come down a lot from where it was”.
Ms Stewart said the more conventional bond holdings were sensible holdings as they would likely be called by the banks, meaning creditors are more likely to get paid back in full.
The manager said some of the old-style debt would soon not count towards a bank’s capital requirements, so they would look to issue new types of debt as a replacement.
Ms Stewart said which ever way the independence vote goes, there is likely to be an impact on markets, particularly in shorter-dated government bonds, which have a shorter life span.
