Bond and currency traders seeking refuge as the results of the U.K. vote on membership in the European Union come in are finding that the worlds financial-market havens arent so safe.

There were already signs that liquidity, the ability to trade without affecting prices, was deteriorating in some investment oases in advance of Thursdays ballot. 

Liquidity has dropped by about a third in European sovereign bonds, according to David Page, a senior economist in London at AXA Investment Managers. Vanguard Group Inc., which oversees about $3.5 trillion, is hearing from currency dealers that they may provide indicative, rather than firm, prices in the event volatility climbs. In the pound, which is at the center of global scrutiny, some investors are reluctant to hold spot positions, according to Europe-based traders.

Everybodys just preparing for the potential of a shortage of liquidity, said Andy Maack, head of foreign-exchange trading at Vanguard in Malvern, Pennsylvania. For the first time I can remember, weve actually gotten notices from all our counterparties saying that they might not be able to provide pricing, that their prices might turn into indicative pricing during a period of time, that they might suspend algorithmic trading.

Liquidity Constraints

As investors navigate a potential Brexit, worsening liquidity raises the difficulty of unloading or adding positions. It also heightens the risk that there will be repeats of the bouts of turbulence thatve rocked global markets in the past year.

New Zealands currency suffered its biggest intraday drop in 30 years in August, the same week that dozens of U.S. exchange-traded funds diverged from the value of their underlying shares. In January, the South African rand tumbled 9 percent in 15 minutes before rebounding, and last week, a measure of volatility in Group-of-Seven currencies rose to a four-and-a-half-year high.

U.K. polling indicated a close race and early results from northeast England Friday showed greater support for leaving the EU than academics had forecast. Bank of England officials have warned about the risk of a Leave victory for the nations economy, while the Federal Reserve left interest rates unchanged last week and cited a potential British exit as a factor in its decision.

Emergency Action

Australia & New Zealand Banking Group Ltd. joined lenders including UBS Group AG and Societe Generale SA in cautioning clients that its ability to provide the usual levels of currency liquidity as well as pricing could be constrained, according to a memo seen by Bloomberg.

Chicago Mercantile Exchange Inc. will take emergency action to modify price limits on futures contracts based on the strong likelihood of increased price volatility expected to result from the vote, it said in a note on its website.

Sterling tumbled Friday when Sunderland in northeast England voted 61 percent to back a so-called Brexit, a bigger amount than analysts had expected before Thursdays ballot.

The yen, a refuge in times of turmoil, surged 2 percent in less than 10 seconds, while the pound nosedived 2.3 percent in the space of 25 seconds before they reversed direction almost immediately. The Japanese currency appreciated to 103.07 per dollar, its strongest in almost two years, and traders are braced for more strength. The premium for one-month options to buy the yen versus the greenback, over the cost of contracts to sell, climbed to the most since 2010 last week, data compiled by Bloomberg show.

Liquidity is Thin

If you look at the price action after the Sunderland result, its clear that liquidity is thin, said Sue Trinh, Royal Bank of Canadas Hong Kong-based head of Asian foreign-exchange strategy.

Yields have tumbled in the U.S., the worlds biggest bond market, which had its own episode of unusual turbulence in 2014. On Oct. 15 that year, in a span of 12 minutes, benchmark 10-year yields slid 0.16 percentage point then rebounded, prompting the first government review of the market since 1998.

Last week, benchmark 10-year Treasury yields touched 1.52 percent, the lowest since 2012.

Stress Tests

Investors can prepare for volatility by running stress tests on portfolios and adjusting positions incrementally as information emerges after the referendum, said Sinead Colton, San Francisco-based head of investment strategy at Mellon Capital.

The challenge for investors battening down the hatches is that everyone wants to buy the same assets, said James Kwok, London-based head of currency management at Amundi SA, which oversees about 987 billion euros ($1.1 trillion).

Its easy to identify — the Japanese yen is a safe haven, U.S. Treasuries are a safe haven, Kwok said. The problem is when you have big size, you need to buy enough to hedge your whole portfolio — and at this point, you run into the liquidity problem.

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