Yesterday UK Chancellor Darling announced in the country’s budget plan address that the British government will be issuing 220 billion pounds of loans in the form of UK gilts. This is an enormous amount of funds that the British government needs to raise to sustain the economy. The UK Gilts futures market (the British equivalent to the US treasuries market) realized this yesterday and sent Gilt prices tumbling from 123 down to near 120. Strangely enough, the pound did not fall that much against the dollar (less than a 200 pip fall compared to its recent 1000 pip range). This is definitely a gestalt shift for the bond market and would normally be expected to affect the currency market as well, however the Pound has remained resilient. This resilience suggests that the market is not immediately eager to drive the pound lower. The UK seems to have gone through the worst in this global economy the fastest and may possibly heal earlier as well. The UK has three things that may offer it an earlier recovery:

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UK Gilt futures vs. British Pound futures chart [source: Bloomberg data

• The fact that the government has been strongly proactive in repairing the financial system (it guaranteed two of it’s largest banks
• The British economy doesn’t depend heavily on the manufacturing sector, which has hit other economies really hard, such as Asia and Europe
• The Pound fell the hardest last year, however its weakness has really helped UK exports