Long night looms as traders await election outcome

GILT traders will be burning the midnight oil tonight when the gilt futures market opens for business overnight for the first time since the derivatives contract was launched in 1982.

However, they may struggle to stay awake because most pension funds and retail investors are unlikely to enter any big positions until later tomorrow morning, when the cash market opens and the election outcome is clearer.

"It's difficult to see why anyone would want to take risk positions at 2am when it won't be clear what the result will be. Most of the investors I've spoken to don't want to take any risks," said Francis Diamond, strategist at JP Morgan.

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"Any volumes you do get will be small and will probably be local traders on Liffe speculating and having a bet."

Futures exchange NYSE Liffe will open trading in gilt futures, short sterling interest rate futures and FTSE-100 futures from 1am tomorrow, allowing investors to hedge their investments as the election results trickle in.

Most of the 17 Gilt Edged Market Makers will have a few staff in overnight to trade gilt futures, but cash gilts will not be trading and most analysts reckon volumes will be thin.

"It'll just be market makers trading with each other," said Neal Watts, a gilt sales strategist at interdealer broker ICAP.

"I'm not sure how much other flow will go through."

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Although gilt futures have benefited recently from safe-haven buying in response to the fiscal crisis in Greece, they have traded in a range between 113.52 and 115.62 for the last couple of months as investors sit tight for the poll.

The yield on 10-year gilts, at around 3.83 per cent, is already at its lowest this year, and Mr Diamond sees little scope for it to fall much further even if investors view the election outcome positively.

LIFFE introduced overnight trading for European derivatives only three years ago. This is the first time the technology has been in place to allow gilt futures to be traded on a UK election night.

LIFFE said its decision to trade overnight was in response to client demand.