The value of the pound recovered on Thursday as Keir Starmer assured traders that chancellor Rachel Reeves will remain in her role “into the next election”.
It came after government borrowing costs surged after the chancellor was seen shedding tears in the Commons on Wednesday while the prime minister failed to back her when questioned at the despatch box.
The 10-year gilt yield, a benchmark for the cost of servicing the national debt, surged by nearly 16 basis points to 4.61%, while 30-year yields climbed 19 basis points to 5.42%.
Meanwhile, sterling fell by a cent against the US dollar, sliding from $1.3745 to $1.3636, making it the worst-performing major currency in the world at the time, on the back of the news.
Christian Kopf, head of fixed income at asset manager Union Investment Group, told BBC Radio 4’s Today programme:
Starmer has since reassured traders of Reeves' position. “She and I work together, we think together. In the past, there have been examples – I won’t give any specific – of chancellors and prime ministers who weren’t in lockstep. We’re in lockstep,” he said.
The yield on UK 30-year bonds has dipped by 0.8% in early trading, to 5.361%. UK 10-year bond yields have also dipped by around three basis points, to 4.55% from 4.58% last night.
These moves suggests the bond markets are relieved that the PM is standing by Reeves, easing concerns that a new chancellor might be less committed to the current fiscal rules.
