– The UK bond market tumbled, driving long-term bond yields back to the highest in nearly three decades, as speculation over Keir Starmer’s future as prime minister renewed concern about the weakened state of Britain’s finances.
Most Read from Bloomberg Gilts fell across the board, with the 30-year yield briefly touching 5.81%, the highest since 1998
The pound slid 0.6% to $1.3523. NatWest Group Plc and Lloyds Banking Group Plc fell at least 3% as analysts speculated that the industry faces higher taxes under a new administration. Even as Starmer rebuffed calls for his resignation in a Cabinet meeting on Tuesday, investors were analyzing what his possible replacements would mean for the bond market.
The chief concern is that any new Labour leader would be more left-leaning and may loosen the fiscal rules that have restrained borrowing. With the economy already facing a crunch from higher energy prices and faster inflation, the fragmentation of British politics has become another source of market anxiety. “The simple reality is that this latest pressure in a now long line of political upheavals merely adds to the view that no matter who is in power, no matter their political leaning, there does not appear to be a credible plan to restore the country’s finances,” said Matt Cairns, head of fixed income strategy at Rabobank. “Gilts will remain under pressure, regardless of today’s outcome.” Gilts pared some of the moves later in the session. The 30-year yield rose as much as 14 basis points and was trading at 5.79% as of 2:41 p.m. in London.