The risk of the UK Prime Minister stepping down has temporarily disappeared: the entire cabinet has expressed support, and the UK bond yields have subsequently fallen.

On Tuesday, borrowing costs in the UK decreased as Prime Minister Keir Starmer solidified his position, reducing the risk of him stepping down. Long-term bonds saw the biggest increase, with the yield on the UK's 30-year government bond falling by 4 basis points to 5.31% after a sharp rise on Monday when the market widely believed Starmer may be forced to resign. The yield on the 10-year government bond also fell by a similar margin to 4.50%. On Tuesday, Starmer's position seemed more secure as he received public support from all members of the cabinet, including potential rivals Wes Streeting and Ed Miliband, as well as another potential successor, former Deputy Prime Minister Angela Rayner. Craig Inches, head of rates and cash at Royal London Asset Management, mentioned that if the political turmoil subsides, investors will refocus on potential rate cuts by the Bank of England, inflation data, and the supply of long-term government debt. Inches said, "Despite the political drama, gilts still look like good value." Earlier, Starmer's position was threatened as two key aides resigned following the appointment of Labour veteran Peter Mandelson as the UK's ambassador to Washington, Mandelson having close ties to Epstein. However, this breathing space may only be temporary. Inches said, "Streeting and Rayner have put aside their differences for the time being, and unless another major event like the Epstein case occurs, Starmer's next obstacle appears to be the by-election in May." Analysis indicates that UK government bonds with no other terms could perfectly reflect political risk premiums like the 30-year bond. The 30-year UK bond rose from mid-November to mid-January, with yields dropping by over 30 basis points. However, most of this increase has been reversed, as traders are unlikely to have confidence in long-term UK bonds, keeping yields at higher levels. As the possibility of leadership changes still looms this year, investors are evaluating potential successors and how they may address government tax and spending issues. The bond market is likely to react negatively to any signs of increased spending without additional income. Camille de Courcel, European interest rate strategist at BNP Paribas, stated, "The key is their fiscal position. This uncertainty, this unknown future direction, has led to British asset prices weakening for several weeks in a row."