UK: Political risk lifts long yields – Deutsche Bank

Deutsche Bank analysts flag a sharp rise in 10‑year gilt yields after a report that former United States (US) ambassador Peter Mandelson failed security vetting, with the decision allegedly overruled. This was seen as problematic for Prime Minister Starmer and raised concerns that a successor might relax fiscal rules and increase borrowing, adding to upward pressure on gilt issuance and yields.

Fiscal concerns and politics weigh on gilts

"Finally in the UK, 10yr gilt yields (+3.4bps) saw a sharp move higher in the afternoon, driven by a Guardian story that former US ambassador Peter Mandelson had failed his security vetting clearance for that appointment, and the decision had been overruled by the Foreign Office."

"So that was seen as a problem for Prime Minister Starmer’s position, as he’d previously told the House of Commons that “full due process was followed”."

"That led to a negative market reaction, because the consensus view is that Starmer’s replacement would face pressure to ease the fiscal rules and borrow more, leading to higher gilt issuance."

"Meanwhile, gilts had been slightly underperforming even before that report, as data showed UK GDP grew by a monthly +0.5% in February (vs. +0.2% expected)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)