Recent update

UK 20- and 30-Year Gilt Yields Reach Multi-Decade Highs

Britain's extended-term borrowing rates have climbed to the highest points since Tony Blair's early days in office, fueled by intensifying doubts about Keir Starmer's position.

Reuters reports indicate that yields on 20-year and 30-year gilts have now exceeded recent monthly peaks, marking levels unseen since 1998.

Key figures include:

UK 20-year gilt yield climbs to highest since July 1998 at 5.734%, gaining 12 basis points today - LSEG data
UK 30-year gilt yield surges to highest since May 1998 at 5.794%, up 11 basis points today - LSEG data

Key developments

Recent: XTB warns of potential UK bond market crisis
Strategist highlights danger of bond yield spike amid political infighting
UK 20- and 30-year gilt yields at 1998 highs
MUFG: New leadership race would harm sterling and bonds
FTSE 100 drops to lowest since late March
UK borrowing rates rise sharply after ministers push Starmer to resign
Traders increase wagers on Bank of England rate increases
Opening: Sterling burdened by doubts over Starmer's tenure

View key developments only

XTB Flags Danger of UK Bond Market Collapse

Amid Britain's political unrest, Kathleen Brooks, research head at XTB, notes the challenging timing for bonds.

Escalating oil prices are stoking inflation fears, driving up yields further.

Brooks states:

Bond yields face upward pressure from energy costs alone, but UK markets endure a dual hit from oil spikes and governmental chaos. A full bond meltdown looms soon. Would this silence Labour factions dismissing market signals, abandoning fiscal discipline, and ramping up expenditures?
Rachel Reeves previously anchored bond stability via strict fiscal rules curbing debt and funding operations through taxes.
A prolonged leadership struggle or Starmer's exit timeline would render both him and Reeves powerless over finances - a precarious spot less than two years post-election. Bond stabilization looks distant, with more declines possible.

Markets anticipate a leftward policy shift under new leadership, per Ruth Gregory, deputy chief UK economist at Capital Economics:

A leftward turn typically means relaxed fiscal stance, elevated gilt yields, and weaker sterling, though unlikely to spur lasting growth.
With 10-year yields up 10 basis points today and the pound off 0.4% versus the euro - echoing yesterday's shifts - these dynamics are evident.

Sterling's decline accelerates.

The pound has fallen nearly a cent versus the dollar to $1.3511, a one-week trough.

It has also weakened half a eurocent against the euro, dipping under €1.15 - a nearly three-week low.

Chris Beauchamp, chief market analyst at IG, describes UK investors reliving cycles of political volatility.

Political drama returns as markets gauge the prime minister's survival.
Starmer's probable ousting signals deeper unrest, with no assurance a successor unites Labour's divided ranks.
A 'soft left' victor in a lengthy race, pledging spending surges, prompts markets to exact steeper borrowing premiums already.

Strategist Warns of Gilt Yield Explosion in Political Clash

Neil Wilson, strategist at Saxo UK, observes sharp gilt yield jumps as Prime Minister Keir Starmer confronts rising resignation demands.

He cautions:

Longer gilts risk exploding if politics turn combative - amplifying fiscal, political, and inflation threats.
Markets abhor leadership voids; UK's fiscal health is shaky and could worsen with left-leaning spending focus, entrenching inflation.

UK 20- and 30-Year Gilt Yields at 1998 Peaks

Britain's long-term borrowing rates have soared to highs from Tony Blair's first term start, amid swirling speculation on Keir Starmer's path.

Reuters notes 20- and 30-year bond yields topping 1998 marks, surpassing early-month records.

Details:

UK 20-year gilt yield at highest since July 1998: 5.734%, +12 bps - LSEG
UK 30-year gilt yield at highest since May 1998: 5.794%, +11 bps - LSEG

Today's borrowing cost spike follows Darren Jones, chief secretary, indicating Keir Starmer is engaging colleagues.

Jones on Sky News:

I discussed matters with the prime minister yesterday, as expected, and he is addressing concerns from colleagues.
Yet we all remain committed to our duties and fulfilling public pledges upon entering the office today.

Colleague Andrew Sparrow covers live political twists.

MUFG: Leadership Battle Bad for Pound and Gilts

The pound slides further - down two-thirds cent to $1.354 against the dollar.

UK political flux undermines sterling and lifts yields, says Lee Hardman at MUFG.

Hardman to clients:

Market reactions stay contained but signal rising worries over Starmer's viability amid Labour pressures.

Over 70 Labour MPs demand his exit; reports note Shabana Mahmood, Yvette Cooper, and John Healey privately advising transition plans. Hardman continues:

Yesterday's four aide resignations escalated pressure. Starmer's end appears near; any contest heightens uncertainty, hurting pound and gilts - especially with leftward risks.

FTSE 100 at Lowest Since Late March

London equities open lower.

FTSE 100 plunged up to 1.1%, shedding 117 points to 10,152 - lowest since March end.

Banks lead declines: NatWest (-4.6%), Lloyds Banking Group (-4.1%), Barclays (-4%).

Derren Nathan of Hargreaves Lansdown cites US-Iran tensions alongside domestic woes:

At home, climbing borrowing costs and Starmer's shaky hold compound issues. A looser fiscal heir weighs on rates, but persistent high oil drives inflation more.

UK Borrowing Costs Leap After Ministers Press Starmer to Depart

Alert: UK gilt yields rise at market open.

Markets reel from calls for Starmer's structured exit pre-cabinet.

10-year gilt yield up nearly 10 bps to 5.1% from 5% prior.

Yields climb as prices drop, extending yesterday's uptick.

30-year yields gain 10 bps to over 5.77%, nearing monthly 28-year peak of 5.78%.

Michael Brown at Pepperstone on investor fears:

Gilt weakness stems from left-shift risks under new PM - easing fiscal rules - worsening inflation.
With prolonged uncertainty and heated fiscal talk, dip-buyers may hold off.

Traders Boost Bets on Bank of England Hikes

City anticipates more UK rate rises this year.

Money markets now price 68 bps of BoE hikes by year-end, versus 56 bps yesterday.

This suggests two hikes (50 bps total) as baseline, third more likely.

Brent crude's 1.25% rise to $105.50/barrel adds inflation pressure.

Political risks - looser spending prompting tighter policy - may factor in.

Jefferies expects 'managed' Starmer exit; economist Mohit Kumar predicts left-leaning successor hurting sterling and long bonds.

Opening: Sterling Dragged by Starmer Leadership Doubts

Welcome to live business, markets, and global economy coverage.

UK politics overshadows City as Starmer faces exit timeline demands.

Bonds draw focus post yesterday's yield surge after Starmer's speech flopped, spurring MP resignations.

Reports: Yvette Cooper and Shabana Mahmood urge power handover post-locals.

Pound down half-cent to $1.3560.

IG's Tony Sycamore: Sterling weighed by Starmer pressures.

Investors eye cabinet; yields may climb on spending/borrowing fears breaching rules.

Jim Reid at Deutsche Bank:

Cabinet today may decide Starmer's fate amid uncertainty.