UK Yields Steady as Markets Eye Burnham's Cabinet

The UK 10-year gilt yield was little changed at 4.95%, hovering near a two-month high and on track for a third consecutive weekly gain, its longest winning streak since early March, when markets reacted to the outbreak of the Iran war. Investors are assessing the confirmation of Andy Burnham as the new Labour leader, paving the way for him to become prime minister on July 20. Market attention has shifted to his choice of Chancellor, with reports that Shabana Mahmood is the leading candidate reassuring investors and easing concerns over a more expansionary fiscal stance. Meanwhile, escalating tensions in the Middle East have driven oil prices to one-month highs, adding to inflation risks and reinforcing expectations that the Bank of England will continue tightening monetary policy. Markets now fully price in a rate hike by year-end, with another increase expected by March 2027.

The UK 10-year gilt yield held around 4.95%, close to the near two-month high reached earlier this week, as resilient economic data and higher oil prices reinforced expectations that the Bank of England will raise interest rates later this year. The UK economy grew 0.1% in May, rebounding from a 0.1% contraction in April, while GDP expanded 0.7% over the three months to May, beating forecasts of 0.5%. Markets now fully price in a November rate hike, with another increase expected by March 2027. The outlook contrasted with comments from BoE policymaker Sarah Breeden, who said the UK's weak economy and labor market reduce the need for further tightening despite the inflationary risks stemming from the Iran conflict. Meanwhile, gilt yields remained below 5% as reports that Home Secretary Shabana Mahmood is set to become chancellor under incoming Prime Minister Andy Burnham eased concerns over a more expansionary fiscal policy.

The UK 10-year gilt yield reversed early gains to trade around 4.95%, retreating from near two-month highs as investors welcomed expectations that Andy Burnham, widely expected to be confirmed as the UK's next prime minister on Monday, will appoint a fiscally conservative finance minister. With Burnham's confirmation largely priced in, markets have shifted their focus to his choice for the Treasury amid the UK's fragile public finances. Reports naming Home Secretary Shabana Mahmood as the leading candidate reassured investors, easing concerns that Burnham could instead appoint Ed Miliband, who is viewed as favoring a more expansionary fiscal stance. Meanwhile, rising Middle East tensions have pushed oil prices to one-month highs, reinforcing expectations that the Bank of England will continue tightening policy. Markets now fully price in a rate hike in November, with another expected by March 2027.