THE beauty of financial markets is that they look forward. Clever traders try to predict tomorrow’s events and their implications for everything from the price of orange juice to demand for steel. That makes markets powerful barometers of the economy, and when traders are uncertain, volatility is the result. Thus in the run-up to Britain’s most unpredictable election for a generation, some markets are in a flutter—but perhaps not those you would expect. The 2010 election campaign drew attention to ups and downs in Britain’s government-bond markets. With a sovereign-debt crisis engulfing Greece, Italy and many other European countries, the Conservatives claimed austerity was necessary to placate bond traders. Markets were in a tizz before the election; the price of insuring against a British government default was jumpy in the run-up to polling day (see chart). Investors worried that an unstable coalition government might not deal with a gaping deficit and the debts that had been run-up bailing out the banks during the financial crisis. Today, stability has returned to the bond markets and Greece is seen as an exceptional...
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