Published by Jamie JemmesonA tepid election result next year may result in a selloff in the pound and bonds, Morgan Stanley has warned.In an investors' note yesterday (November 30th), equity strategists Graham Secker and Catharina Luebke-Detring warned that, taken with a spiralling budget deficit and unbalanced prospects for economic recovery, a meek election win could inspire a major selloff."At the current juncture a lack of leadership from the top could have severe ramifications for foreign-exchange and bond markets, a sharp drop in sterling and rise in gilt yields," the duo wrote.Bloomberg reports that such a drop may be exacerbated if ratings agencies decide to cut Britain's top debt rating. Taking such factors into consideration, the Morgan Stanley analysts declared that some corporate bond yields will trade below gilt yields next year.Speaking to the Telegraph, David Buik, an analyst at BGC Partners, said the government needs to rise to the challenge of resolving the debt crisis by raising VAT to 20 per cent and cutting non-core services.For more information on foreign exchange treasury services and risk management, visit our Corporate FX site