UK 10-Year Gilt Yield Rise on Early OBR Report

UK 10-year gilt yields slipped back toward 4.5%, near their lowest level since late January, as markets navigated renewed political uncertainty. Bond markets began the week under pressure following the resignation of Prime Minister Keir Starmer's chief of staff amid the Lord Peter Mandelson scandal, sparking speculation about Starmer’s own position. Yields swung sharply during Monday's session, climbing around eight basis points at their peak, particularly after Scottish Labour’s leader called for Starmer to step down. However, sentiment stabilized as cabinet members publicly reaffirmed their support for the prime minister, calming investors. Meanwhile, expectations for Bank of England rate cuts have strengthened. Although the central bank left its benchmark rate unchanged at 3.75% in a split vote, policymakers struck a more dovish tone than anticipated, signaling that CPI inflation is likely to move back toward the 2% target from April.

UK 10-year gilt yields rose further above 4.5%, extending recent volatility as political uncertainty weighed on markets. Concerns over Prime Minister Keir Starmer’s leadership intensified after the resignation of his chief of staff amid the Lord Peter Mandelson controversy. Starmer has faced renewed calls to step down from within a fractious Labour Party, particularly after scrutiny surrounding his appointment of Mandelson as UK ambassador to the US, given Mandelson’s past links to Jeffrey Epstein. However, Skills Minister Baroness Smith dismissed speculation of his resignation, saying he remains focused on domestic priorities. Meanwhile, markets have increased bets on Bank of England rate cuts. Although the central bank kept interest rates unchanged at 3.75% in a split decision, policymakers adopted a more dovish tone than expected, indicating that CPI inflation is likely to move back toward the 2% target from April.

UK 10-year gilt yields fell to 4.55%, after the Bank of England kept interest rates unchanged at 3.75% but signaled a more dovish stance than markets had expected. Although the decision to hold was widely anticipated, the vote split surprised investors, with four of nine MPC members favoring an immediate 25 basis point cut to 3.5%, citing expectations that CPI inflation will return toward the 2% target from April. The Bank highlighted that risks from persistent inflation have eased, while weaker demand and a softening labor market have become more pronounced. Gilt yields had reached an over three-month high of 4.612% on Thursday, driven by rising political uncertainty after Prime Minister Keir Starmer appointed Peter Mandelson as UK ambassador to the US, a move attracting scrutiny over Mandelson’s past links to Jeffrey Epstein.