The Financial Fixed Odds update from David Evans, Market Analyst, BetOnMarkets.

This morning’s main theme is a move against Sterling.

• Pound/Yen Spreads are down 0.58%
• Euro/Pound Spreads are up 0.56%
• Pound/Dollar Spreads are down 0.32%

Although perhaps not a sign of a dramatic sell off, the moves are more telling on a day morning when a relief rally sets in on the beleaguered euro.

Despite downgrades to Greece, Portugal and Spain, traders are preferring the euro to the pound, which is saying something.

The uncertainty surrounding the coming general election is now intertwined with the prospects for a downgrade to UK debt.

What would a downgrade to UK sovereign debt mean?

Like any individual going for a loan from the bank, those deemed at higher risk will be charged more. This will increase their borrowing costs and the time it takes the pay off those debts.

With the UK finances at post war highs, any increase in the cost of interest payments would make problems even worse.

To some extent, markets are already factoring some sort of downgrade, but a formal statement from ratings agencies would certainly amplify the problem, at least in the short term.

Coming Up Today

Coming up today we have the UK Halifax House Price Index at 07.00 and US unemployment claims at 13.30.

Spain Credit Rating Downgraded

For those who missed it, yesterday afternoon, Spain had its credit rating downgraded, renewing fears of the problems in Greece spreading like a virus across Europe.

Credit Default Swaps – Is Britain next?

Credit Derivatives traders certainly think it’s a good bet.

Credit Default Swaps allow traders to hedge their risks against a country defaulting on its debts (as well as pure unhedged speculation).

As unpopular as these markets are to sovereign governments, they have been very accurate in predicting where the next problem will be. CDS markets moved against Greece and Spain well before the major downgrades, now the CDS traders have Britain in their crosshairs.

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