UK Bonds Set for Big Weekly Drop on Rate Bets, Starmer Risk

British government bonds are set for their worst week since the early days of the Iran war, undermined by a simmering political crisis within the ruling Labour Party and expectations of higher interest rates this year.

Gilts have dropped across all maturities this week, lagging US and euro-area counterparts, with benchmark 10-year yields adding as much as 20 basis points, the most since early March. While the slump has been most pronounced in longer-dated bonds that best capture political risk premium, the selloff also deepened in two-year debt on Thursday, as unexpectedly strong business data spurred traders to price more rate hikes.