Ian Spreadbury, manager of the Fidelity Strategic Bond fund says he does not see a disaster for markets in the wake of a hung Parliament.

The example of Greece suggests that countries that do not take steps to cut their deficits will be punished by sharply rising interest rates, which would be disastrous given the size of the debt burden facing the UK.

However, it is also the case that all three main UK political parties agree that there is a need to cut the deficit. The divisions between them come from different views on just how quickly and deeply such cuts need to be made, Spreadbury says.

A Tory majority would likely result in faster cuts, which would benefit gilt and high quality corporate bonds. Labour's commitment to growth could see gilt yields rise, but it too is committed to cutting the deficit over the medium term, Spreadbury adds. 

"In the event of a hung Parliament, which is now looking quite likely, we would have some form of power sharing involving the Liberal Democrats. Their attitude to tackling the deficit is quite robust and so I don't think it would be disaster for the markets; in fact it is already partly discounted. I do think there could be some modest upward pressure on yields to reflect concern that it may be difficult to get a consensus on the tough decisions that would need to be made," he says.

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