Icelandic crown hits 8-yr high, bonds gain after election (updated)
31/10/2016 15:05
(Adds quotes, detail, background)
LONDON, Oct 31 (Reuters) - Iceland's crown currency rose to
a fresh 8-year high against the euro EURISK= and its benchmark
government bonds rallied on Monday after national elections at
the weekend.
The vote on Saturday saw Icelanders opt for stability with
the anti-establishment Pirate Party falling short of
expectations and the junior partner in the outgoing government,
the centre-right Independence Party, emerging on top.
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Investors have been gradually returning to Iceland after its
2008 banking crisis and there was relief that recent policies
that have helped feed growth and seen capital controls start
being removed were likely to be maintained.
The crown rose to 123.45 per euro EURISK= its strongest
since the turmoil began eight years ago and well up from the 140
per euro where it started the year.
Iceland's benchmark longer-dated government bond also
rallied with yields on a 2025 bond sliding 11 basis points to
5.19 percent RIKB250612= and dropping 10 basis points to 5.23
percent on a 2031-maturing bond RIKB310124= , according to
Reuters data.
"The fact the Independence Party did better in the elections
than we had been looking at in the polls was construed in a
positive light," said Mark Dowding, BlueBay Asset Management's
co-head of investment grade credit.
"I think you have a degree of political stability, but the
real news in Iceland is an economy that continues to perform
very strongly on a number of fronts."
He added that relatively stable inflation should allow the
country's 5.25 percent interest rates, by far the highest in
western Europe, to drop to 4 percent by the end of next year
with its remaining capital controls also removed by then.
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There also were some sizeable gains on the nation's stock
market, the largest being from fish industry company HB Grandi
GRND.IC which surged 5.6 percent.
"I think the market reaction reflects expectations there
will be less change to fisheries policy than if we were to see a
clear left-leaning majority," said Arion Bank's Head of Research
Stefan Gudjonsson
"There was huge debate ahead of the election on potential
changes to the quota system and taxation on fishing, and there
were big differences between the parties."
President Gudni Johannesson will hand the mandate to the
party that will be tasked with forming the next government in
the nation of around 330,000. He met party leaders on Sunday and
Monday but it could take days before a mandate is given.
(Reporting by Marc Jones in London and Anna Ringstrom in
Stockholm, additional reporting by Zoe Robert in Reykjavik;
Editing by John Geddie and Keith Weir)
((marc.jones@thomsonreuters.com; +44)(0)(207 542 9033; Reuters
Messaging: marc.jones.thomsonreuters.com@reuters.net Twitter
@marcjonesrtrs))
Keywords: ICELAND MARKETS/ELECTION