⏳ Reading Time: 3 minutesWhile discussing reincarnation, the US political strategist, James Carville, famously said that he “would want to come back as the bond market. You can intimidate everybody”. With that in mind, let’s turn to UK politics, which have once again become rather noisy.
At time of writing (Friday morning), it looks likely that we’ll have a leadership challenge in the Labour party, with former Health Secretary Wes Streeting, Greater Manchester Mayor Andy Burnham and possibly former Deputy Prime Minister Angela Rayner as potential challengers to Prime Minister Keir Starmer. The precise timing remains uncertain – Burnham needs to find his way back to parliament first – but the direction of travel seems pretty clear.
These political shifts continue to have an impact on UK financial markets, particularly government bonds. We think the calculus breaks down like this.
Firstly, oil prices have been an important driver for government bonds recently. Government bond yields globally have generally risen on concerns that higher oil prices will feed into higher inflation – and UK yields have followed suit.
As for UK politics, we think that bond investors would be more comfortable with Starmer or Streeting as Prime Minister, rather than Burnham or Rayner. Both Rayner and Burnham are generally more left-leaning politicians and would likely prefer to increase government spending. This would most likely result in more borrowing and less budget discipline. This has generally been taken more negatively by bond markets and has helped to push up the yield on UK government debt in recent weeks.
