THE OUTLOOK FOR GILT - EDGED The market's first reactions have been
the obvious ones— a fairly sharp rise in industrial ordinary shares, with tobacco and brewery shares well in the lead, and an uncertain ten- dency in gilt-edged and other high-class fixed-interest stocks. It is noteworthy, however, that gilt-edged have held their ground and encountered Only the merest trickle of selling. For this encouraging resistance to the " bearish " implica- tions of a huge borrowing programme there are one or two explanations. First, it is clear enough that certain technical conditions are on the Treasury's side. In recent months the floating debt has fallen so substantially that a re- expansion can be contemplated with equanimity. This means that temporarily the Government can finance its increased Defence spending by raising the amount of Treasury Bills offered at the weekly tenders. Money market institutions, which have latterly complained of a dearth of bills, will welcome such a move, the Treasury will be left free to choose its time for issuing Defence loans, and the gilt-edged market is relieved of any fears it may have had of early and embarrassingly large additions to its supplies of stock.
For this reason alone I should have expected the effect of a prospective borrowing of even so large a sum as £350,000,000 to be comparatively light,. but I cannot help feeling that gilt-edged are benefiting now from the increased confidence which is the logical result of our rearmament achievement and the other evidences of more vigorous national policy. This is surely, too, the explanation of the steadiness of sterling, which has not batted an eyelid despite the Chancellor's conversion to liberal finance. Until the last few days, even in periods free from acute political ten- sion, such a departure from orthodox finance as the borrowing of £350,000,000 would have raised the cry of inflation in every Continental centre and produced consider- able pressure on the pound. This week's behaviour of sterling and gilt-edged is -ft measure of the recent improve- ment in British currency and credit-rating both at home and abroad.
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