UK gilt yields have surged as a leadership crisis for prime minister Keir Starmer has rattled bond markets.
In early trading, 30-year gilts saw yields hit 5.8% this morning, the highest level since 1998. 10-year yields rose to over 5.1%, close to the 52-week high of around 5.2%, a level that itself was a 20-year high.
The uncertainty comes as the prime minister said he would get on with running the country despite a minister's resignation and the number of Labour MPs calling for him to step down grows to over 80.
Market commentators said the markets were becoming "less tolerant of political uncertainty at a time when borrowing costs are already uncomfortably high".
Quilter Cheviot head of fixed interest research Richard Carter said: "Investors are pricing in a higher risk premium as speculation around Keir Starmer's leadership and the possibility of a shift towards a looser fiscal stance unsettle confidence in the UK's policy framework."
He added: "Today's spike underlines that whoever leads the government next will inherit very tight constraints. Markets are not passing judgement on ideology so much as arithmetic. With debt levels high and global risks already elevated, investors are looking for clarity, discipline and continuity. Without that, the bond market is likely to keep applying pressure, with consequences that are felt well beyond the gilt market itself."
IG chief UK market analyst Chris Beauchamp said a fiscal crisis was looming as yields surged.
He said: "There is no clear plan for what comes next, but markets are already pricing in a new PM who will open the floodgates on spending despite the UK's dangerous fiscal situation.
"Faced with hordes of Labour MPs worried about their re-election chances as Reform surges, a new PM will find it very hard to resist calls to spend more money in order to shore up their embattled party. Much of the case for the UK as an investment destination rested on the Starmer/Reeves commitment to fiscal rectitude, but it is unlikely that a new leader from the left of the party would feel bound by such promises."
