Bloomberg
Published Nov 08, 2019 05:40AM ET
Updated Nov 08, 2019 09:37AM ET
Election Road to More U.K. Borrowing Puts Focus on Bond Spread
(Bloomberg) -- There are so many scenarios in U.K. politics now it’s hard for investors to know where to turn. With both main parties aiming to ramp up spending after next month’s election, a bond market spread is likely to widen no matter which side wins.
Whoever forms the next government, there is an increased risk of a swelling budget deficit that would be funded by extra borrowing in the bond market. That is likely to hurt gilts and widen their spread against interest-rate swaps.
If Boris Johnson’s ruling Conservatives win as polls suggest, they will look to end a decade of austerity. Victory for Jeremy Corbyn’s Labour party would open up the spending taps further and also risk capital flight that would widen this swap spread even more. Either way, investors would need to hedge against the possibility of a hung Parliament, where no side has a majority.
To contact the strategist on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net
Written By: Bloomberg
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