Gilt yields in the UK rose to above 5 per cent this week after Andy Burnham stepped into the role of prime minister.
Despite this rise, experts say bond markets have remained calm during the transition and global markets are more focused on oil prices and the Middle East rather than UK politics.
The UK 10-year gilt yield has risen by more than 10 per cent in the past year.
The UK 10 year gilt yield over the past 10 days © FT
This week, the gilt yield reached more than 5 per cent for the first time since May, closing the week at 5.09 per cent.
Dan Coatsworth, head of markets at AJ Bell, said: “Bond markets have been calm during the transition from Keir Starmer to Burnham. The official forming of a new government on July 20 saw gilt yields steady until the afternoon when they jumped after Burnham made remarks about fiscal flexibility.
“While he has pledged to stick to existing rules, he implied there is wriggle room within them.
“The comments initially caught the market off guard, but Burnham was quick to say he would not take any risks with the economy. That was a soothing tonic for bond investors.”
David Roberts, head of fixed income at Nedgroup Investments, said global bond markets are linked to rising oil prices.
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He said: “Global bond markets continue to focus on oil prices and the Middle East.
“UK politics is of little interest in the grand scheme of things.
“Gilts yields and their spread to other G7 bonds are directionally correlated with Brent spot price, rising and widening as oil prices rise.”
Roberts said the transition to a new prime minister “brings a further level of uncertainty”
He added: “On a relative basis, UK gilts offer yields not seen in almost a decade. However, the recent collapse of the ceasefire between Iran and the US, and the subsequent rise in oil prices, is reinforcing fears of higher inflation.
“If inflation proves sticky, gilt yields could remain elevated as investors demand a higher yield to compensate for the more uncertain domestic backdrop.”
tara.o’connor@ft.com
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