Why U.K. Bond Yields Could Rise Further On A Deeper Political Crisis

Borrowing costs could initially climb if the political situation worsens, but a leadership change need not materially alter the fiscal or Bank of England outlook. By James Smith, Developed Markets Economist, UK, Michiel Tukker, Senior UK & Eurozone Rates Strategist and Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE Local elections: What's happening From Trump to trade, FX to Brexit, ING's global economists have it covered. Go to ING.com/THINK to stay a step ahead. We're sorry we can't reply to individuals' comments.Content disclaimer: The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.This publication has been prepared by ING solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. For our full disclaimer please click here. A significant Labour defeat could trigger leadership uncertainty, potentially adding 10-20bp to 10Y gilt yields as investors price in political risk and possible fiscal loosening. Near-term fiscal trajectory is expected to remain stable, but longer-term risks include pressure to reverse tax rises or increase spending, especially if Labour's poll position weakens. FX options markets price only minor volatility around the election, with EUR/GBP likely to remain in the 0.86-0.88 range unless fiscal risk premia rise sharply.