UK 30-year gilt yields retreat from 28-year high as Starmer vows to stay
British Government Bond Market Reacts to Political Developments
LONDON, May 8 (Reuters) - British government bond yields fell on Friday after Prime Minister Keir Starmer said he would see through his full term despite early results from local elections which showed the Labour Party suffered heavy losses.
Gilt Yield Movements and Market Comparison
The yield on 30-year gilts, which this week hit its highest since 1998 on worries about a possible change in leadership of the government or its borrowing plans, as well the impact of the Iran war, on Friday fell as much as 9 basis points to 5.546% at 0932 GMT.
Friday's move represented a marked outperformance for gilts versus 30-year U.S. Treasuries and German bonds, which were broadly flat on the day.
Prime Minister Starmer’s Commitment
"I am not going to walk away," Starmer said. "It was a five year term I was elected to do, I intend to see that through," he added in an interview with Sky News.
Performance of Other Gilt Durations
Yields on short-dated gilts ranging from two to five years in duration were also down, and the 10-year gilt yield fell 5 bps to 4.895% at 1000 GMT, also outperforming versus U.S. and German debt.
Factors Influencing Gilt Yields
Impact of the Iran War and Energy Concerns
British government borrowing costs have risen more sharply than those of other European governments since the start of the Iran war on worries about the country's reliance on natural gas for its power generation and home heating.
Weekly Performance Overview
However, looking at the past week as a whole, gilt prices are on course to show a gain. Ten-year gilt yields - a reasonable proxy for the cost of new government borrowing - are on track to close at a two-week low, after hitting their highest close since 2008 last week.
Expert Commentary
"Gilts have recovered some of their recent underperformance versus other core bond markets, helped by more attractive relative valuations for both domestic and global investors," said Craig Veysey, fixed income lead at Guinness Global Investors.
"The local election results add to UK political uncertainty, but they do not appear to represent the worst-case scenario of an imminent leadership challenge," he added.
Outlook and Future Developments
Pending Election Results and Political Uncertainty
Most of the election results - including those for parliaments in Scotland and Wales - have yet to come, however, and the political situation could still change rapidly.
Interest Rate Expectations
Investors are pricing in two quarter-point interest rate hikes by the Bank of England by the end of 2026.
(Writing by Suban Abdulla; editing by David Milliken)
