Bond managers fear for gilts and sterling

Bond managers fear for gilts and sterling in the coming days and weeks as the markets react poorly to the reality of a hung parliament.

Henderson head of retail fixed income John Pattullo believes the hung parliament scenario is "a mess" and only adds to the uncertainty in current global markets.

"Gilts went up at first at 1am when the market thought the Tories could get in, but that reversed pretty quickly," Pattullo says.

"We are quite short gilts, so for us it is not too bad. But for the market as a whole, it will be a worry how long this uncertainty drags on for.

"After the ‘fat fingers' episode in America last night and the Greek mess, there is already a flight to quality - German bunds are at 2.77% right now."

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.

Ignis head of credit portfolio management Chris Bowie believes the 10-year gilt could easily rebound to 4% in the near-term.

"We are nearly about 15 basis points away now and it is not inconceivable it could get there quite quickly," he says.

"The pound looks like it will continue to slide against the dollar, but I do not know what will happen against the euro - they both do not look great."