The big beast of Ken Clarke was unleashed yesterday on the media, warning of the dangers of a hung Parliament. he said quite rightly that history shows the weak Governments which the markets do not expect from the UK, can cause us difficulties in selling our gilts and maintaining our currency.
However of note is the two currency charts below,
These show that since the election started there has been a slight improvement in the Pound's position against the two major trading currencies. A slight blip is can be discerned around the Clegg debate boost, but that is disappearing. However, the charts also suggest that the Pound is nearing the top of its trading range for the Euro and has reached a plateau with the Dollar. The Euro rate is very likely to correct over the next two weeks; whereas the Dollar rate could break up or down. With the election in the UK my bet is the £/$ is going to go down. So Ken Clarke has been wrong up until now, but is about to be proved right for the rest of the election!
Next up is a quick look at Gilts. The price of gilts has been stable for a month, but the weekly trend is now starting to show rising yields - which is falling prices. So again, the mantra of Clarke is likely to be right, with Gilt prices falling into the election. Rising inflation will also continue to drive the prices of gilts down.
UK Benchmark Gilt Yields
Maturity Yield Today1 WeekAgo 1 MonthAgo
1 Month 0.53% 0.00 0.52% 0.53%
3 Month 0.54% 0.00 0.54% 0.54%
6 Month 0.57% 0.00 0.57% 0.57%
1 Year 0.70% -0.03 0.70% 0.70%
2 Year 1.14% +0.11 1.14% 1.10%
3 Year 1.81% +0.03 1.81% 1.81%
4 Year 2.30% +0.05 2.29% 2.29%
5 Year 2.73% +0.01 2.73% 2.73%
7 Year 3.36% -0.08 3.36% 3.36%
8 Year 3.66% +0.07 3.66% 3.68%
9 Year 3.92% +0.07 3.91% 3.95%
10 Year 4.01% +0.08 3.99% 4.03%
15 Year 4.48% +0.13 4.47% 4.51%
20 Year 4.56% +0.17 4.55% 4.58%
30 Year 4.57% +0.14 4.55% 4.60%
What all this shows is that the Tories were right to keep quiet for the first two weeks of the campaign, as the facts would not fit the narrative; from now on though it is likely that they will start to fit the narrative. Ken Clarke is very canny and well advised.
PS The Tories are of course right overall, check out the bond yields on that FT link - the UK is in deep trouble compared to the US and the bigger European countries. Even Italy is faring better than us!