UK Bond Vigilantes Eye Gilts as Labour Absorbs Local Election Losses
CNBC reported Friday that early counts from UK local council elections pointed to significant Labour losses, sending gilt yields higher and intensifying questions over Prime Minister Keir Starmer‘s political survival.
Labour Absorbs a Punishing Night at the Polls
Preliminary results showed Labour shedding hundreds of council seats across the country. Right-wing Reform UK and the left-wing Greens were the primary beneficiaries. The Conservatives also faced steep losses. The results carry no direct consequence for Westminster’s composition, but they expose deep voter dissatisfaction with Starmer’s leadership. Backbench Labour MPs were reportedly preparing to use the poor showing as grounds to demand his resignation.
Gilt Yields Push to Levels Unseen in Decades
Benchmark 10-year gilt yields nudged one basis point higher in early London trading Friday. Earlier in the week, those yields climbed to their highest point since 2008, driven by reports of an internal party move to unseat Starmer. Thirty-year gilt yields also touched levels last seen in 1998. The UK already carries the heaviest government borrowing costs in the G7. Yields on 10-, 20- and 30-year debt all sit above the 5% threshold. Yields and bond prices move in opposite directions, meaning rising yields reflect falling investor confidence.
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A Pattern of Fiscal Anxiety Under Starmer and Reeves
This is not the first time political turbulence inside Labour has rattled gilt markets. Last July, yields spiked after finance minister Rachel Reeves was spotted visibly distressed in parliament. That episode followed a government reversal on proposed welfare spending cuts after internal party opposition. Starmer and Reeves have faced sustained criticism over fiscal policy from within their own ranks. The appointment of Peter Mandelson as US ambassador, given his association with the late sex offender Jeffrey Epstein, further strained internal party relations.
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Markets Wary Whoever Leads Labour Next
Financial advisers are warning that neither outcome — Starmer staying or departing — offers gilt markets much comfort. Nigel Green, chief executive of advisory firm deVere Group, told CNBC that gilt markets risked becoming “one of the biggest political risks” facing the government in the weeks ahead. He noted Labour had already shed roughly 58% of the council seats it was defending overnight. “Markets pay extremely close attention to political authority, particularly when governments are already facing difficult fiscal conditions,” Green said. Health Minister Wes Streeting, former Deputy PM Angela Rayner, and Greater Manchester Mayor Andy Burnham are among names circulating as potential successors to Starmer.
