U.K. 30-Year Gilt Yields Hit 28-Year High Amid Political Concerns

By Miriam Mukuru

Borrowing costs on U.K. 30-year government bonds surge ahead of local elections on Thursday due to concerns about a potential political crisis in the U.K.

Prediction markets indicate that the ruling Labour party could perform poorly at the elections, triggering a potential leadership contest for the prime minister role.

"Borrowing costs could initially climb if the political situation worsens," ING strategists said in a note.

U.K. 30-year gilt yields hit 5.787%, the highest level since 1998, LSEG data showed. Ten-year gilt yields also climbed to a six-week high of 5.102%, according to Tradeweb data.

A possible change in the U.K. leadership, which could lead to a policy shift in favor of looser fiscal rules, is likely prompting investors to demand a higher risk premium for buying longer-dated debt.

"Political uncertainty translates into higher term premia, higher yields and ultimately a higher cost of borrowing for the U.K.," Aberdeen Investments' Luke Hickmore said in a note.

Markets will look for any potential of a weaker commitment to government spending rules, Hickmore said.

"Investors will listen closely to campaign rhetoric and messaging from the main parties for clues on priorities after the vote--particularly around respect for institutional independence, commitment to fiscal rules and the role of independent oversight," he said.

On top of political concerns, yields are rising due to inflation concerns. High energy prices amid the Middle East conflict have sparked fears about rising inflation, causing markets to price in possibility of the Bank of England raising interest rates in the coming months.

However, some analysts say a U.K. leadership change might not necessarily lead to a shift in fiscal rules. The potential replacements for Keir Starmer haven't indicated a strong preference for fiscal loosening right now, ING strategists said.

"The bottom line is that the near-term fiscal trajectory--borrowing over the next one or two years--is unlikely to look wildly different whoever is in charge."

Write to Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

May 05, 2026 10:27 ET (14:27 GMT)