Good morning. The market for UK government bonds, or gilts, has been the source of unusual attention this week. That’s never a good sign. The yield on UK 10-year debt is at its highest level since 1998.
In case you haven’t been following along, the cause this time — as always — is the country’s penchant for manufacturing political crises out of a period of relative stability. The results of local elections on May 7 have thrown the government of Prime Minister Sir Keir Starmer into a tailspin, as contenders for the throne threaten and then fail to launch challenges to his leadership of the Labour Party. This matters to bond markets because there’s a reasonable chance that whoever succeeds him will tack left and increase borrowing beyond the government’s fiscal rules.
It has become a cliché to observe that UK debt is the worst-performing in the G7. This is true in nominal terms. The spread between UK and US 10-year yields is almost 60 basis points, or 0.6 per cent. It is also true that UK yields have risen the most among peers.