Gilt yields hit 28-year highs as political uncertainty rattles bond markets
Long-term UK borrowing costs reached their highest level in nearly 30 years on Tuesday before easing, as uncertainty surrounding Keir Starmer's position as prime minister unsettled financial markets.
The Guardian reported that the yield on 30-year government gilts climbed 11 basis points to 5.794% — a level not seen since May 1998 — as investors weighed the prospect of a Labour leadership change and potential shifts in tax and spending policy. Yields later retreated after Starmer told a cabinet meeting he would not resign and that no formal leadership challenge had been initiated.
The move came after Miatta Fahnbulleh became the first minister to step down following Labour's heavy losses in last week's local and devolved elections, calling on Starmer to quit.
"The Labour party has a process for challenging a leader and that has not been triggered," Starmer (pictured right) said. "The country expects us to get on with governing. That is what I am doing and what we must do as a cabinet."
Several cabinet ministers publicly backed the prime minister following the meeting. Markets stabilised somewhat in response, with the benchmark 10-year gilt yield falling back below 5.1% after earlier reaching 5.13%, while the 30-year yield eased to 5.76% from an intraday peak of 5.81%.
Sustained increases in gilt yields raise borrowing costs for the government, households and businesses alike. While yields across most major economies have risen this year due to inflationary pressures linked to the Middle East conflict, the UK has been particularly affected.
Markets are also assessing what a change of leadership could mean for fiscal policy. Two potential successors to Starmer — Angela Rayner and Andy Burnham — have each indicated support for higher public spending.
Gilt yields had already been elevated earlier in the week following a rise in energy prices. A prolonged period of elevated gilt yields would be likely to sustain upward pressure on fixed-rate mortgage pricing, given the close relationship between long-dated gilt yields and the swap rates that underpin fixed-rate products.
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