UK government bond yields fell to five-week lows on Tuesday as investor concerns over domestic political instability began to ease. Markets also reduced expectations for further interest rate hikes amid improving sentiment around global energy supply risks.
The benchmark 10-year gilt yield dropped to around 4.85%, extending last week’s sharp decline after recently hitting multi-decade highs. Long-dated bonds also rallied, with the 30-year gilt yield continuing to retreat after a surge driven by fears over fiscal uncertainty and political pressure on Prime Minister Keir Starmer.
Investors had become increasingly concerned after weak local election results intensified speculation about potential leadership challenges within the Labour Party. However, several leading political figures signaled support for maintaining current fiscal rules, helping calm fears of a major shift toward higher government borrowing and spending.
At the same time, easing energy market tensions and lower oil prices have reduced inflation concerns, prompting traders to scale back expectations for tighter monetary policy. Analysts noted that markets are now pricing in fewer rate hikes next year, supporting a broader recovery in UK government bonds.
