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2026-07-13 17:52:10
[Clay Warns of Upside Risk to UK Government Bond Yields; Political Vacuum and Fiscal Dilemma Pressure Bond Market] ⑴ Clay analysts noted in a report that UK government bond yields face the risk of further increases due to ongoing political uncertainty, putting pressure on the market to repric the risk premium for UK assets. ⑵ Following Keir Starmer's resignation in June, the UK is currently in a leadership vacuum, with the new prime minister yet to be finalized. It is widely expected that Andy Burnham will succeed Starmer on July 20, provided no other candidate challenges him within the Labour Party. ⑶ Analysts emphasize that the UK's public finances are fragile, with high deficits and debt levels, which will be a core challenge for the new prime minister. Uncertainty regarding the fiscal consolidation path may exacerbate bond market volatility. ⑷ Global bond markets have recently been under pressure due to the escalating situation in the Middle East, with yields generally rising. Against this backdrop, the increase in UK government bond yields has significantly exceeded that of similar products in the Eurozone, highlighting the additional political premium they face. (5) The focus of subsequent attention will be on the actual direction of fiscal policy after the selection of the new British prime minister, and whether the spread between British bonds and core European bonds such as German bonds will continue to widen due to changes in political risk premium.
