Gilts and Pound Rise as Conservatives Widen Lead

Goose+

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March 29 (Bloomberg) -- Britain?s government bonds and pound rose after a poll showed the opposition Conservative Party increased its lead amongst voters and Standard & Poor?s affirmed the U.K.?s top credit rating.

The advance in gilts pushed the yield on the 10-year bond down the most in more than a month as S&P said it won?t review the U.K.?s rating until after parliamentary elections that must be held by June 3. A wider lead for the Conservatives makes it less likely the forthcoming election will produce a government without a parliamentary majority, and increases the chances that cuts will be made to stem the fiscal deficit.

?The Tory lead in the polls seems to have reversed some of the decline we?ve seen in recent weeks, which is helping gilts,? said Jason Simpson, an interest-rate strategist at Royal Bank of Scotland Group Plc in London. S&P?s affirmation ?wasn?t a big surprise, but is nice to know,? he said.

The yield on the 10-year gilt fell 6 basis points to 3.98 percent as of 4:59 p.m. in London. It earlier fell as much as 8 basis points for the biggest drop since Feb. 24 based on generic yield data compiled by Bloomberg. The 3.75 percent security due September 2019 advanced 0.43, or 4.3 pounds per 1,000-pound ($1,499) face amount, to 98.22. The two-year gilt yield dropped 1 basis point, to 1.17 percent.

The pound rose to $1.4969 from $1.48978 at the end of last week. It appreciated to 138.7 yen from 137.82 yen. Against the euro, the British currency was little changed at 89.96 pence.

Dollar Correlation

The pound strengthened versus the yen as the MSCI World Index of shares advanced 0.3 percent, stoking demand for riskier assets denominated in the British currency. The gains came even as Bank of England data showed U.K. mortgage approvals unexpectedly fell to a nine-month low.

The pound rose against the dollar 47 percent of the time in the last 120 days when the MSCI World Index advanced, according to data compiled by Bloomberg.

?Equities are trading higher this morning and that?s helping the pound against the dollar,? said Jeremy Stretch, a senior currency strategist at Rabobank International in London. ?Markets need to see that the Conservative lead is going to result in an election win before they are more reassured.?

Concern that an election will fail to produce a government strong enough to tame the deficit has helped drive the pound lower this year against all 16 of its most-traded peers. Sterling has lost 7.3 percent versus the dollar and 1.2 percent against the euro in 2010.

Spending Plans

The Conservatives? lead over Prime Minister Gordon Brown?s Labour Party widened by 2 percentage points from last week, the ICM poll for the News of the World newspaper showed yesterday. The Conservatives have 39 percent of support compared with Labour?s 31 percent, the newspaper said. A YouGov Plc poll for the Sunday Times newspaper showed the Conservatives ahead by 37 percent to 32 percent.

George Osborne, Treasury spokesman for the U.K. Conservatives, said his party would cut spending by 6 billion pounds immediately to trim a record deficit and cancel part of a proposed employment-tax increase.

Osborne faces Chancellor of the Exchequer Alistair Darling tonight in the first televised debate of the campaign for this year?s election, which is likely to fall on May 6. Brown has yet to call the vote. Brown on March 26 gave Darling his backing to keep his job should the Labour Party win.

S&P kept the U.K.?s credit rating on negative outlook, meaning that it is more likely to be downgraded than upgraded or kept the same.

?Consolidation Plan?

?In the absence of a strong fiscal consolidation plan, the U.K.?s net general government debt burden may approach a level incompatible with a AAA rating,? S&P analysts including Trevor Cullinan wrote in a statement published in London today. ?We expect to review the long-term rating and outlook again once medium-term fiscal policy becomes clearer following the 2010 parliamentary elections.?

S&P first lowered its outlook on Britain in May and said the nation faced a one in three chance of losing its top rating, which it has held since 1978. Darling said in his budget report on March 24 that he expects the deficit to decline from 11.8 percent of GDP to 4 percent by April 2015.

U.K. gilts returned 0.4 percent this year, compared with 0.9 percent for U.S. Treasuries and 2.3 percent for German government bonds, according to indexes compiled by Bank of America Corp.?s Merrill Lynch unit.

http://www.bloomberg.com/apps/news?pid=20601083&sid=ahSiAGPD1ENI

Turns out that overseas investors and credit rating agencies don't like the socialist governments of Europe anymore.
 
Of course they don't, they are capitalists and want the money for themselves.
 
So the only thing that happened in British this week was a poll showing the tories 6 points ahead of Labour?

I think this smells like post hoc ergo propter hoc logic.
 
So the only thing that happened in British this week was a poll showing the tories 6 points ahead of Labour?

I think this smells like post hoc ergo propter hoc logic.
I think it's possible that's there's some causation there; not just correlation. Like Goose+ and AiR outlined, capitalists would rather see the conservatives in power (knowing they'll cut spending and inflation). So at the very least it's an interesting correlation.

Edit: There I go, applying common sense to politics and economics.
 
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Yeah, it's possible. But I don't think a POLL will influence the economy that much, as a factor in economics, I'm sure opinion polls rate rather low.

Anyway, you know why God put economists on earth? To make astronomers look good.
 
Labour put up taxes on cider by an stupidly high amount for no good reason that I could see,
 
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Turns out that overseas investors and credit rating agencies don't like the socialist governments of Europe anymore.
... and even if we assume for a moment that there is that correlation of the market with a Poll roughly 2 Months before the election, while there are still infinite numbers of events possible that might swing this either way ... "overseas investors and credit rating agencies" are now the people who you think want the best for "Britian", and the guys to listen for?
 
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Anyway, you know why God put economists on earth? To make astronomers look good.
:lol: Hey watch it, I'm thinking about a minor in economics.
 
I hate them all - but I feel that I have to vote people died to give me the right so to do - UKIP I suppose anti Common Market, just wish they did not have so many utter gits in the party.
 
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So the only thing that happened in British this week was a poll showing the tories 6 points ahead of Labour?

There was a televised debate between all 3 of the main potential Chancellors tonight. I suspect that (and the news fallout from it) will cause some interesting reactions in the polls and the press.

I've not seen it yet, so I'm not commenting.
 
I'm only grumpy France has went for the Euro, now I can't see what international finance thought about Sarkocy's misrable defeat in the local elections.
 
Labour put up taxes on cider by an stupidly high amount for no good reason that I could see,

When alcopops were taxed leniently, the drinks companies spent a lot of money advertising them to young people, hence the binge drinking and stuff you see. (Not necessarily cause and effect, but alcopops are definitely "alcohol for those that don't like the taste of alcohol". Now alcopops have fallen out of fashion and been taxed a fair bit, cider has popped up as the replacement option, especially with pear, berry etc etc. Again, selling alcohol for those who don't etc....

There was a televised debate between all 3 of the main potential Chancellors tonight. I suspect that (and the news fallout from it) will cause some interesting reactions in the polls and the press.

Alistair Darling (Labour, current Chancellor) was pretty good. Or rather, not a disaster. Given the state of the economy, he did well to come out neutral.

Vince Cable (LibDem) has been a spectacularly good voice of reason on the economy since this whole thing started and didn't blemish his copybook. In a perfect world, the election would be a LibLab coalition, with Cable as Chancellor.

George Osbourne (Conservative). Oh dear. You know when Sarah Palin managed to remember her own name during the VP debate and her supporters were "see, she didn't screw up, so ergo, she must have done well"? That was Osbourne. The Tories are desperately trying to spin it as "he didn't make any mistakes". They'll be happy to have come out of it without making any massive cockups, which is their entire strategy for the election.

The Guardian is Left-leaning, so is bound to put an anti-Tory spin on things, but the live blog is worth a read.
 
Labour put up taxes on cider by an stupidly high amount for no good reason that I could see,

It's become the targeted "alcohol is bad" drink by campaigners, simply because a two litre bottle of White Lightning is the cheapest way to get trashed.

In Scotland, it's been rumoured that the cider tax is to take the wind out of the SNP's increasingly popular minimum alcohol pricing proposal.
 
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