United Kingdom

There appear to be only two factors that are weighing on sterling: politics and economics. The weekend polls show the risks of a hung parliament continue and the market sees this as sterling negative. Despite last week’s poor retail sales data and speculation that Q4 GDP may be revised lower when it is reported at the end of the week, gilts continue to be sold off, with the 10-year yield rising 26 bp in the past two weeks to stand at the highest level since Nov 2008. More supply this week will aggravate a market already disappointed with the unexpectedly large GBP4.3 bln deficit in January. GBP3 bln of a 10-year issue will be sold on Feb 24th and the UK seeks to place a 50 year bond via syndication. Sterling itself is near 9 month lows against the dollar and the end of last week and is consolidating those losses currently. Support is seen in the $1.5300-50 area.