UK long-dated bond losses steepen as doubts swirl around Starmer's future

MANCHESTER, ​England, May ⁠11 (Reuters) - Losses on long-dated UK government bonds ​deepened on Monday after a speech by Prime Minister Keir Starmer did little to dispel investor doubts about his political ​survival, ‌following Labour's heavy defeat in last week's local elections.

The 30-year gilt yield, which moves inversely to the price, ⁠ended up 9 basis points higher on the ⁠day after Starmer's speech at 5.656%, having ​been up 5 bps beforehand. French, German and U.S. equivalent bond yields were up by 2 bps.

Last week, 30-year yields hit their highest level since 1998. The rise in long-dated bond yields ​in part ‌reflect concerns around fiscal sustainability, with some of Starmer's own Labour Party lawmakers calling for his departure.

"Markets are concerned a new Labour government could result in looser fiscal rules and increased government borrowing," said Oliver Faizallah, head of fixed income research at Charles Stanley, a brokerage.

He added that ​recent moves had underlined how gilts were sensitive to political developments, rather than near-term economic data.

Short- and ‌medium-dated gilt yields were 6 basis points higher on the day.

In a speech that was light on new policies but filled with pleas ‌to his party and personal attacks on his opponents, Starmer said he would build closer ties with the European Union, create better job opportunities for young people and nationalise British Steel.

But losses ​for gilts subsequently deepened on reports that former British junior minister Catherine West plans to press ahead with efforts to ‌replace Starmer, according to a statement reported by BBC News on Monday.

A small but growing number of Labour lawmakers have called for his resignation and investors are watching closely for any sign of ⁠fracture among ⁠his members of his cabinet.

Speaking after Starmer's speech but ‌just before news of the BBC report on West's plans, Ranjiv Mann, senior portfolio manager at Allianz Global Investors, said ​he was comfortable holding gilts ​on a relative value basis.

"What the market's really looking for ‌is really some evidence that the Labour Party moving in direction of a closer working relationship of the EU and that seems to be that's what this government is signalling," Mann said. (Additional reporting by Yoruk Bahceli, Editing by William Schomberg and Suban Abdulla)