Base case: In the event of a “No” vote, there might be some kind of relief rally. Valuation then should have improved due to recent underperformance and the market could offer some attractive buying opportunities. However, selectivity would be key.

Risk case: There would be contractual issues to be resolved and some companies with direct exposure might suffer. On the sector level, banks and utilities might experience a negative impact. However, on the other hand, a weaker currency might offer some relief to those companies, which have felt some currency headwinds lately. UK’s equity market is perceived as a low volatility market, but this might change. However, potential political implications are likely to cloud sentiment towards European equities. Fixed Income

Base case: If a “No” result prevails, higher yields at the short end of the curve are likely as re-
pricing regarding the BoE’s first rate hike might reverse. The yield curve for Gilts might flatten. Also, sterling shows some potential for a relief rally in the aftermath of a “No” vote. Specifically for cable, this squeeze potential results from option-related short positions.

Risk case: BoE: Scotland separating from the UK would have uncertain implications for banks’ balance sheets. Uncertainties regarding asset ratings and currency exposure etc. might cause banks’ CDS spreads to widen and funding liquidity to fall short. In that case the BoE would need to provide assets to the market to ensure liquidity. BoE market-supporting measures would be very likely. Cable: On the currency side we should see further pressure on sterling especially against the dollar, again somewhat dampened by supporting measures on behalf of the BoE. Gilts: If as we approach the referendum the polls remain tight, or there is a further move towards a “Yes” vote, longer-term Gilts might price in a risk premium due to increased volatility. Thus, a divergence on the curve might be visible: a lower short end anchored in expectations on BoE actions and a higher long end due to the UK’s reduced safe-haven status. Euro: In the medium term a “Yes” might also have a significant negative impact on the euro as it would imply further growth and stability uncertainties. The discussion around a British exit from the EU and other countries’ regions striving for independence (e.g. Catalonia) might intensify and thus weaken the sentiment towards the Eurozone. International capital flows might react to increased uncertainty in Europe and go to other regions instead.

Eoin Treacy's view

Here is a link to the full note. 

Politicians might wish to anchor the debate to the monetary value of the vote to individual consumers. Since voting is an intensely personal experience, making sure how the decision will affect someone in real terms has a high probability of creating the desired frame of mind when one enters the polling booth. However the emotionality of an independence vote rather than a straight election introduces a wild card which is reflected in the narrowing of polls. 

This article from The Telegraph, kindly forwarded by Sarah, highlights the “pounds, shillings and pence” aspects of the argument not least in how a yes vote could introduce currency risk for mortgage holders in Scotland. 

There have been a number of headlines touting the “massive move” in Spanish yields as people handicap the potential for an independence vote for Catalonia. This should be put in context. Spanish 2-year yields have contracted steadily over the last year and hit a low near 10 basis points in nominal terms in late August. The rate has rallied over the last couple of weeks to hit 20 basis points but is only now challenging the progression of lower rally highs. This is not a panicky move. At some point momentum could pick up for independence votes across minority nationality regions in Europe but that would be predicated on a yes vote passing in Scotland.