UK Gilt Yields Rise Toward 4.8%

UK 10-year gilt yields climbed toward 4.8%, rebounding from two-month lows and tracking a surprise rise in US Treasury yields. This followed the latest JOLTS report, which showed job openings at a two-year high, while analysts expect another strong June non-farm payrolls report, reinforcing bets that the Federal Reserve will raise interest rates this year. In the UK, investors assessed the growing likelihood of Energy Secretary Ed Miliband becoming the next Chancellor over centrist Wes Streeting. Concerns about fiscal policy under Andy Burnham, the frontrunner to succeed as Prime Minister, eased after his fiscal discipline pledge. Meanwhile, attention remained on the ECB’s Sintra Forum for economic and policy insights. Bank of England Governor Andrew Bailey reiterated that the BoE is not rushing to respond to rising oil prices, with inflation still on track to return to the 2% target, albeit later than desired.

UK 10-year gilt yields fell to 4.71%, near two-month lows, as bond markets remained calm while investors awaited news on the new Treasury leader to replace Rachel Reeves. Markets looked past immediate fiscal concerns tied to a likely Andy Burnham premiership, with the new Chancellor’s identity expected to signal the direction of fiscal and economic policies under the incoming government. Burnham, the sole candidate to succeed Keir Starmer, pledged on Monday to significantly devolve fiscal powers from Westminster to local authorities if elected, while upholding fiscal discipline. Gilt yields were on track for a 9bps monthly decline as investors assessed the impact of the interim US-Iran peace deal and shifting interest rate expectations in both the UK and US. The reopening of the Strait of Hormuz has reduced oil prices and inflation concerns, lowering bets on Bank of England rate hikes, while the US Federal Reserve’s hawkish stance continues to support expectations of US rate increases.

UK 10-year gilt yields hovered around 4.73%, staying close to two-month lows, as bond markets absorbed Andy Burnham’s speech. Burnham, the sole candidate to succeed Keir Starmer, vowed to significantly devolve fiscal powers from Westminster to local authorities if elected, while maintaining fiscal discipline. In his first major speech after winning a Commons seat, Burnham criticized the UK’s "stark imbalance" between national and local government resources, calling it a barrier to growth. However, he refused to disclose potential ministerial appointments, stating he would announce them only after the Labour leadership contest concludes. Investors are also evaluating the impact of an interim US-Iran peace deal and shifting interest rate expectations in both the UK and US. The reopening of the Strait of Hormuz has lowered oil prices and inflation forecasts, reducing bets on Bank of England hikes, while the US Federal Reserve's hawkish stance supports US rate increase expectations.