UK 10-Year Gilt Yields Fall to One-Month Low

The UK 10-year gilt yield fell to 4.78%, extending declines for a second session and moving closer to the two-month low of 4.745% reached on June 17, as weaker UK flash PMI data reinforced expectations of slower economic momentum and reduced the likelihood of Bank of England rate hikes. Political uncertainty also eased after Prime Minister Keir Starmer announced his resignation, with Andy Burnham emerging as the leading candidate to replace him. Attention now turns to Burnham’s potential policy agenda, cabinet choices and the implications for public finances. If no major challenger emerges, Burnham could take office as early as July 17. Meanwhile, June PMI data showed the UK economy remained under pressure, with the composite index falling to 49.4, below expectations and signalling contraction for a second consecutive month. Services activity weakened, while manufacturing held up better. Rising input costs and persistent services inflation remain key concerns for the Bank of England.

The yield on the UK 10-year gilt slipped to 4.81% after climbing in the previous two sessions, as investors reacted to Prime Minister Keir Starmer's resignation while concerns over the prospect of a disruptive leadership transition eased somewhat. The resignation follows Greater Manchester Mayor Andy Burnham's by-election victory last week, which enabled his return to Parliament. Burnham subsequently announced his intention to seek the premiership. Prospects for a smooth leadership transition improved after Wes Streeting, previously viewed as a potential challenger, declared his support for Burnham. Investors are now focused on the implications for the UK's fiscal outlook and Burnham's fiscal policy agenda, with few concrete details available so far. A key concern remains the possibility of increased gilt issuance to finance higher public spending, which could further strain the UK's already fragile public finances and elevated debt burden.

UK 10-year gilt yields fell to around 4.822% after Prime Minister Keir Starmer announced he would step down, opening the possibility of Greater Manchester Mayor Andy Burnham becoming the next Labour leader. Burnham is now seen as a leading candidate, but investors are focused on what a new government could mean for fiscal policy and the future path of borrowing. Markets are also watching who could replace Chancellor Rachel Reeves if a leadership change results in a wider cabinet reshuffle. Burnham has so far provided limited detail on his economic plans, creating uncertainty over potential spending commitments and debt dynamics. Investors remain cautious about any increase in government borrowing, as UK public finances are already under pressure. Bond yields have eased in recent weeks amid optimism over a possible US Iran peace deal, after previously reaching an 18-year high as Middle East tensions pushed energy prices higher and raised inflation concerns.