Political instability keeps UK government bond risk premiums elevated

⑴ ING strategists stated in a report that, due to the continued instability of the UK political environment, investors may continue to demand a risk premium for UK government bonds. ⑵ On Monday, UK Prime Minister Starmer rejected calls for his resignation, providing temporary relief for investors concerned about potential changes in UK leadership. ⑶ The strategists pointed out that after Starmer's statement reassured the market, UK government bond yields declined slightly. ⑷ However, despite this short-term easing, the market may still continue to demand higher yields for UK government bonds compared to similar bonds in other developed markets. ⑸ This indicates that political uncertainty has been continuously priced in by the market, and as long as the fundamental factors of political instability remain unresolved, the risk premium for UK government bonds will persist.