Gilts and sterling slide as hung parliament looms

Gilts and sterling are falling sharply this morning as investors react to the likelihood of a UK hung parliament.

The 10-year gilt has reversed some of its recent gains since trading began at 1am this morning, with the yield climbing 7 basis points to 3.86% by 6.30am.

Sterling, which was punished against most major currencies yesterday, has fall significantly against the euro today, down 1.54% to €1.156. The pound is also continuing to slide against the dollar, dropping 0.85% to $1.466.

While the Conservatives are set to win the most seats in parliament, it is highly unlikely the party can command an overall majority, with fewer than 100 of the 650 seats left to declare.

"There is a little weakness in sterling simply because the market was recently pricing in a Government controlled by the Tories," Investec Asset Management head of currency Thanos Papasavvas says.

"It is not yet clear what the situation will be, which means sterling is likely to be a bit more volatile for the news few days, hopefully no longer than that.

"Whatever happens though - whether it is a Tory Government, or Labour/Lib Dem - it will make no difference to sterling as long as the people in power tackle the deficit problem.

"We still like sterling and are overweight the currency; a lot of bad news is already priced in. If it weakens much further, we seem to think it offers a more attractive entrance point."