Halister News

(Bloomberg) -- An electoral upset in the U.K. with Labour Party winning could be bad for gilts and good for the pound as that may lead to austerity being removed and borrowing boosted, according to Nomura strategists led by Jordan Rochester.

• While unlikely, tightening polls mean that a victory for Labour leader Jeremy Corbyn is not entirely implausible
• Higher gilt yields “are the obvious conclusion” as fiscal easing lifts growth and inflation expectations; bond issuance increases; and the chances of a hard Brexit or cliff-edge scenario are reduced, the strategists write in a note to clients
• The pound may suffer initially on the surprise of a left-leaning government gaining power and investor expectations of increased deficit financing
  • But higher real yields resulting from tighter BOE policy and hopes of a soft, or no, Brexit, should eventually support the currency
• NOTE: Pound falls on tighter polls as traders wake up to election risk

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma