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(Bloomberg) — UK government bonds slid as calls grew for UK Prime Minister Keir Starmer to step aside following his party’s large losses in local elections last week.
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Yields on 30-year gilts, which are sensitive to political and fiscal risks, rose almost 10 basis points to 5.68%. The pound fell 0.1% versus the dollar and the euro.
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Catherine West — a former minister who withdrew her threat to force an immediate leadership contest — said she’d still push for a timetable for Starmer’s exit.
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That was after he vowed to contest any leadership challenge in a speech on Monday that appeared to do little to subdue the rebellions brewing within his party.
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For bond investors, the main concern is that a new leader could shift Labour to the left and hike spending to win back disaffected voters. That would drive up gilt issuance.
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Like global peers, UK bonds have been buffeted by the Middle East war, with the energy shock driving up inflation risks and making interest-rate hikes likely. But the country’s high debt load and fractious politics made them a prime target. The yield on the 30-year bond hit its highest since 1998 last week.
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The UK currency and bond market are no strangers to political upheaval. In 2022 a mini-budget under then Prime Minister Liz Truss sparked a crisis that sent the pound to a record low and gilt yields surging. It eventually required the intervention of the Bank of England.
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