What Will Happen to Gilts if Labour Topple Tories?

U.K. government bonds could plunge if the Labour Party pulls off a shock upset in Thursday’s election, causing yields to almost double.

With the latest polls showing the gap between Prime Minister Theresa May’s Conservative Party and Jeremy Corbyn’s Labour narrowing, analysts are reworking their scenarios for gilts. Deutsche Bank AG and Citigroup Inc. would turn bearish if the opposition wins, while Axa Investment Managers went short on gilt futures and long U.S. Treasury futures last week, hedging what is still seen as an outlier scenario.

“We expect to see quite substantially higher gilt yields and that is simply because if the Labour party is elected there’s an expectation that they are going to invest a lot in infrastructure projects, the NHS, and that will warrant a big pick-up in gilt issuance,” said Nicolas Trindade, a senior portfolio manager for Axa, which oversees 747 billion euros ($840 billion) in assets. “It would also mean a steeper yield curve.”

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.