UK Gilt Yield Back to 18-Year High on Leadership Contest Fears

The UK 10-year gilt yield climbed back above 5.1%, nearing the 18-year high of 5.13% hit in the previous session, after The Times reported that Health Secretary Wes Streeting is preparing to trigger a leadership contest to oust Prime Minister Keir Starmer. The news erased earlier gains in bonds, leaving yields little changed, though this follows a 19-basis-point surge over the past two days. Starmer, whose cabinet has remained largely intact despite a few junior minister resignations, has reaffirmed his intention to stay in office despite pressure from several ministers and over 80 Labour lawmakers calling for his resignation following the party’s poor local election results. Meanwhile, stalled US-Iran negotiations and the closure of the Strait of Hormuz have kept oil prices elevated, with markets now pricing in nearly three Bank of England rate hikes by year-end.

UK gilts regained some ground on Wednesday after recent selloffs, with the 10-year gilt yield falling to 5.08% from an 18-year high of 5.13% in the previous session. The 30-year gilt yield also declined slightly to 5.75%, retreating from its 28-year peak. Investors found relief in a modest drop in oil prices and the absence of a strong challenger to Prime Minister Keir Starmer, whose cabinet remained largely intact despite the resignation of a few junior ministers the day before. Starmer has reaffirmed his intention to stay in office, despite pressure from over 70 Labour MPs calling for his resignation following the party’s disappointing local election performance. Concerns persist that a leadership change could lead to increased fiscal spending to regain voter support. On the monetary policy front, markets are pricing in nearly three Bank of England rate hikes by year-end.

UK 10-year gilt yields climbed above 5.1%, reaching their highest level since July 2008, while the 30-year gilt yield hit 5.8%, its highest since 1998, amid political instability and renewed inflation concerns. Prime Minister Keir Starmer has stated he will remain in office despite calls from over 70 Labour MPs for his resignation following the party’s poor local election results. Investors fear a leadership change could trigger higher fiscal spending to win back voters, though Starmer noted that a leadership contest has not yet been triggered. Meanwhile, traders are increasing bets on further Bank of England rate hikes, with markets pricing in nearly three additional increases by year-end. Brent crude oil prices have also risen above $105 a barrel after US President Trump rejected Iran’s latest peace proposal as unacceptable.