Until this week’s polls, investors had largely disregarded the September 18 Scottish independence referendum, pointing to the consistently large lead enjoyed by the No camp as a reason not to worry.

But Tuesday’s survey from YouGov changed that – not by suggesting that Yes would win, but by implying that it could no longer be ruled out.

The biggest reaction came in currency options markets, where investors rushed to buy protection against swings in sterling around the date of the vote.

Paul Lambert, a fund manager at Insight Investment, said the move reflected hedging by both speculators and companies.

One hedge fund manager said he had begun taking out protection against currency risk last week. “When you average the polls you still have enough margin to view the likelihood of an independent Scotland as a tail risk, rather than a baseline scenario,” he said. “But when you offset that with the price of protection, it’s still worth having some of that in your portfolio.”

Sterling fell around 0.6 per cent against a generally stronger dollar but analysts said they expected the pound to fall much more sharply in the event of a Yes vote. A particular concern for currency investors would be the UK’s persistent current account deficit, if this were no longer offset by North Sea oil revenues.

Undecided voters

Mark Bathgate, head of research at ABD Investment Management, a fund manager said: “We have a long position in the dollar against sterling as this seems like the clearest and simplest way to play a win for independence, given that sterling is likely to weaken in a break-up scenario.” He predicted that in the event of a Yes vote, sterling could slide quickly from current levels of 1.65 to the dollar to 1.50.

Polls narrowing the gap

Outside the City, bookmakers shortened odds on a Yes vote.

Paddy Power moved the odds of Scotland voting for independence in to 11/4. It was 5/1 going into last week’s television debate between campaign leaders Alex Salmond and Alistair Darling. The likelihood of a No vote was at 1/10, but is now drifting to 1/4.

IG Index, the spread betting company, said it had received a bet of £50,000 on a Yes vote on Tuesday morning after the poll was reported.

Gilts investors appeared relatively unmoved. Interest rates on 10-year UK gilts rose by around 6 basis points to 2.349 per cent but there was little movement in yields on shorter-dated debt and the Debt Management Office saw healthy demand for a £4bn sale of bonds due to mature in 2020.

However, Alan Wilde, head of fixed income at Barings Asset Management, said a Yes vote would hit gilts, and could unnerve international holders of UK debt. “It will certainly take some time to provide clarity and this may unnerve international holders – recent data suggests the percentage of overseas holders of gilts down this year after several years of increasing exposure,” he said.

Shares in companies with cross-border exposure also slipped on Tuesday, with RBS and Lloyds Banking Group among the worst performers in a subdued London market. SSE, the Scottish utility with extensive interests in England, fell 1.6 per cent.

Barclays equity research analysts have predicted that a Yes vote could affect shares in banks and companies in a range of other sectors including oil, defence, transport, asset management, utilities, insurance, and property.

However, both the outcome of the referendum and the implications of a Yes vote, remain so unclear that investors’ options are limited.

Several hedge fund managers said that they had looked at trading Scotland but could not assess how the referendum would affect the gilt markets and sterling.

A global macro hedge fund manager said: “The outcome of the election is super uncertain. Even if you were to know the results of the referendum it would be difficult to make money out of it because it is hard to predict what would happen.”

Additional reporting by Elaine Moore

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