UK Bonds Rally as Starmer Says He’ll Stay as Prime Minister

sg1]mw8fkf3xdbcjqxd[1v{u_media_dl_1.png Bloomberg

Article content

(Bloomberg) — UK government bonds rallied as Prime Minister Keir Starmer said he would stay as the Labour leader despite the party’s election losses. 

Article content

Yields on 30-year bonds, which are more sensitive to political and fiscal risks, fell eight basis points to 5.55%. The pound strengthened 0.5% to $1.3616 against a broadly weaker dollar. 

Article content

Article content

Starmer said the initial results were “very tough,” but insisted he would not walk away. With counts completed in approaching a third of English councils, Reform had posted a net gain of 275 seats, while Labour’s tally was down by 204. If Starmer stays in his role, it would ease concerns among some investors that the Labour party is tilting to the left and likely to embrace more generous social spending to win back disaffected voters. 

Article content

Article content

Starmer Vows to Stay On as Farage Gains in Labour’s Heartlands

Article content

Article content

“I guess we don’t have the full results, but the whisper number on losses looked to have been too high, so potentially seeing some short covering in gilts,” said Craig Inches, head of rates and cash at Royal London Asset Management.

Article content

Gilts had underperformed in recent weeks on concern Labour would sustain large losses in the election. So far, the results so far indicate the worst-case scenarios may have been avoided. The yield on the 30-year bond hit its highest since 1998 earlier this week. Like global peers, UK bonds have been buffeted by war in the Middle East, with the energy shock driving up inflation risks and making interest rate hikes likely. 

Article content

What Bloomberg Strategists say…

Article content

“Traders may be quick to add to their skepticism of longer-dated bonds should the overall results stoke fear of policy uncertainty. The UK’s 30-year bonds have underperformed both German and Treasury securities this year, and any outcome that calls into question Prime Minister Keir Starmer’s longevity in office may spur traders to add in a fiscal risk premium.”

Article content

Article content

— Ven Ram, macro strategist. For the full analysis, click here

Article content

Election results are expected to keep coming throughout the day. Only the first round of votes has been counted so far. Further results for England, as well as those from Wales and Scotland, are due later Friday. 

Article content

“It’s still a long road for him to be leader at the next general election or even maybe the end of 2026, but gilt markets have again and again been most focused on the short term of whether he goes,” said Gordon Shannon, fixed-income portfolio manager at TwentyFour Asset Management. “He’s bought himself time.”

Article content

—With assistance from James Hirai.

Article content