UK 10-Year Bond Yield Falls

UK 10-year gilt yields held steady at 5.07% as traders scaled back expectations for Bank of England rate hikes after weak jobs data, partially offsetting last week’s 26-basis-point surge amid political and inflation concerns. Payrolls fell by 100,000 in April, the largest drop since May 2020, while unemployment rose to 5%, wage growth slowed to 3.4%, and vacancies hit their lowest level since 2021. Markets now anticipate only two BoE rate increases by December. In politics, Andy Burnham, the frontrunner among potential leadership challengers to Prime Minister Keir Starmer, yesterday ruled out changing the government’s borrowing limits, easing fears of looser fiscal policy, while Starmer insisted he would not step down even if Burnham wins the byelection, setting the stage for a possible leadership contest. Elsewhere, Brent remained near a four-year high after US President Trump delayed further strikes on Iran but warned of a possible "full, large-scale assault" if talks collapse.

UK 10-year gilt yields fell below 5.1% after oil prices declined following reports that the US proposed a temporary waiver on Iran oil sanctions, with Tehran willing to agree to a long-term nuclear freeze, though not a full dismantlement of its atomic program. The drop comes after a volatile week that saw gilt yields surge 26 basis points to 18-year highs, the largest jump since the first week of the Iran war, amid rising political uncertainty and inflationary pressures. Investors are weighing a potential leadership challenge to Prime Minister Keir Starmer from Andy Burnham, who is viewed as less favorable for bond markets. Inflation fears have also grown due to stalled US-Iran talks over reopening the Strait of Hormuz, with President Trump voicing increasing frustration. Markets still expect nearly three Bank of England rate hikes this year.

UK 10-year gilt yields remained around 5.15%, close to their highest level since July 2008 after a turbulent week that saw a 26-basis-point surge, the largest increase since the first week of the Iran war. The spike reflects mounting political uncertainty and inflationary pressures, as investors assess the potential leadership challenge to Prime Minister Keir Starmer from Andy Burnham, who is seen as the least favorable candidate for bond markets. Inflation concerns have also intensified due to stalled US-Iran negotiations over reopening the Strait of Hormuz, with President Trump expressing growing frustration. Markets now anticipate nearly three Bank of England rate hikes this year, with Chief Economist Huw Pill, who backed the last rate increase, continuing to advocate for further tightening to counter inflation driven by the energy shock tied to the conflict.