Markets stay calm amid another day of political drama

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The Independent Online

The high drama in Westminster was not matched in the City yesterday as markets remaining sanguine, despite the political upheaval.

The Government's Debt Management Office (DMO) sold off £2.25bn worth of long-dated gilts, at an average yield of 4.472 per cent yesterday, in the first scheduled sale of UK debt since last Thursday's general election.

The auction was two and a half times oversubscribed, although investors demanded a higher yield than on previous settlements.

"The bond was already looking cheap against its immediate peers and the fresh bout of political uncertainty pushed up yields even more," said Philip Tyson, an interest rate strategist at MF Global.

"The bigger picture is that risks for sterling assets are still rising until the political situation is resolved," he said.

On 22 April, the DMO sold off £3.75bn worth of gilts with a similar maturity to those auctioned yesterday, at an average yield of 4.078 per cent.

Yields on existing UK sovereign debt also remained fairly stable, helped by the action among eurozone counties to sooth worries over the Greek debt crisis. Yields on 10 year gilts edged up slightly, to 3.89 per cent yesterday.

Credit Default Swap markets widened slightly after coming in sharply on Monday, but the much threatened chaos that the City had warned would follow the election of a hung parliament again failed to materialise.

The FTSE 100 was jittery in early trading, slipping as low as 5,257.15 in the morning, before recovering to 5,334.21 by the end of the day.

Speculation about a political settlement could not prevent the market ending the day in negative territory. Sterling ended the day in positive territory against the dollar, euro and Japanese yen.

The pound gained strength amid reports that the Conservatives could be the dominant party in any new administration.