How will sterling markets fare after the election?

We are not convinced that a hung parliament in the UK would now be such bad news for all sterling assets. Whatever the outcome of tomorrow’s general election, we think 10-year gilt yields will drop to around 3% by the end of the year. We also expect the pound to make further headway against the euro and to hold its ground (more or less) against the dollar. The stock market should have a tougher time, but a modest correction of another 10% or so seems more likely than a crash.