Azernews.Az

By Bloomberg

U.K. government bonds advanced after results of the general election defied predictions of prolonged political deadlock, putting Conservative Party leader David Cameron on course to win the vote with a majority.

The yield on 10-year gilts dropped for a second day. While surveys before the vote had put Britain’s two main parties neck- and-neck, a BBC forecast showed the Conservatives at 329 seats of Parliament’s 650 seats. The pound jumped and U.K. stocks rose.

“The main issue was the potential instability of the final government,” said Vatsala Datta, a U.K. rates strategist at Royal Bank of Canada in London. “That risk has been eliminated now. A lot of pent-up demand may emerge.”

Yields on benchmark 10-year gilts fell six basis points, or 0.06 percentage point, to 1.87 percent as of 9:13 a.m. London time, after dropping six basis points on Thursday, when they touched 2.07 percent, the highest level since November. The 5 percent bond due in March 2025 rose 0.56, or 5.60 pounds per 1,000-pound ($1,547) face amount, to 128.02.

The two-year gilt yield fell one basis point to 0.53 percent after touching 0.37 percent, the lowest since March 25.

Before Thursday’s drop, gilt yields had risen this week amid a selloff in global fixed-income securities. The yield on Germany’s 10-year bunds, the euro area’s benchmark sovereign securities, rose to as high as 0.78 percent on Thursday, the most since December. The yield was 0.58 percent on Friday.

Election Outcome

Opinion polls before the vote had indicated that the two main parties would both be well short of a House of Commons majority, which would leave Britain facing weeks of negotiations before a functioning government could be formed. While that risk has diminished, some investors voiced concern that the ruling party’s pledge of a referendum on Britain’s European Union membership may undermine investment.

“The removal of uncertainty premia will be a positive” for U.K. assets, said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “The EU referendum matters, yes, but it’s still a long way off.”