UK gilts rally slightly after Burnham blocked from parliament return

LONDON, Jan 26 (Reuters) - British government bonds briefly ⁠outperformed ‌German and U.S. government bonds ⁠on Monday, after the Labour Party blocked the return to parliament of Manchester ‍mayor Andy Burnham, seen as a potential challenger to Prime Minister Keir Starmer.

Gilt ‍prices had fallen on Thursday after a Manchester lawmaker stepped down, creating ⁠an opening for Burnham to stand as a Labour parliamentary candidate, which would potentially pave the way for him to challenge Starmer, who ​is performing poorly in opinion polls.

On Monday, benchmark 10-year gilt yields initially fell more than 5 basis points on the day to 4.469% at 0802 GMT, a bigger drop in yield and ‍rise in price than for equivalent U.S. and German bonds.

"Burnham is ‌seen as a potential challenger to PM Starmer with lots of party support. Gilts may ‌see some relative relief this morning as Burnham had said last September that the UK needs to 'get beyond being in hock to the ‌bond markets'," Deutsche Bank wrote in a note to clients.

However, by 0833 GMT ​gilts' outperformance versus Treasuries had faded - with yields for both bonds down about 3 bps on the day - although gilts were still outperforming ⁠German Bunds where yields were 2 bps lower.

Financial ‍markets were pricing in close to zero chance of a rate cut by the Bank ​of England at next week's meeting. A quarter-point ⁠cut to 3.5% is not fully priced in until June, with a roughly 50% chance of a further cut by November. (Reporting by David Milliken; editing by Sarah Young)