60 seconds on the post-election prospects for UK bonds
Rejection of austerity could mean higher government spending and increased supply of gilts.
We have to see what kind of government we get. Obviously we’ve had a shock result in terms of a hung parliament.
The question is now whether we get a minority government, as looks likely under Theresa May. Or maybe there could be some kind of coalition.
Another question is whether or not there may actually be more elections going forward.
More government spending looks likely
What we do know is that there seems to have been a rejection of austerity policies and so we could expect some further government spending.
This would be funded from the gilt market so obviously more supply would mean the gilt market should go down.
Also, it could be inflationary and the impact of the currency falling further could add more to rising prices.
This would mean the consumer is squeezed more and is also something the gilt market wouldn’t like to see.
Fiscal boost could cap safe haven demand
If the fiscal spending that we do get is put into infrastructure then we could get more of a boost to the economy.
We may also get a softer version of Brexit. That again could be deemed more positive and therefore the demand for safe haven assets could be reduced.