Speed or stability? Bond markets strap in for Andy Burnham coronation

City bond traders are strapping in for a “jumpy” ride as Andy Burnham looks set to cruise into Downing Street uncontested – even if a coronation helps head off the worst volatility, analysts have said.

The former Manchester Mayor’s bid for the top job won a major boost today as former health secretary Wes Streeting – who had been viewed as the likeliest challenger – threw his weight behind Burnham.

“Markets are going to be a bit jumpy as [Burnham] takes over and leads into any Budget,” Richard Carter, head of fixed income at Quilter Cheviot, told Morning Wire.

However, Streeting’s decision not to stand crushed the odds of a leadership contest – a move that City investors said could bring stability to the markets by stopping an influx of outlandish policy suggestions.

“I think markets don’t really want the uncertainty of sort of a two to three month contest where all sorts of wacky ideas get put forward,” Carter said.

Though he did add with Burnham there was “risk of missteps” through not having his platform “road-tested”.

Which Burnham do bond markets believe?

In his campaign for the Makerfield by-election, Burnham gave a range of views on issues from EU membership to Waspi women. But while a full contest would help Burnham lay out his policy platform, this was likely to change on entry to Downing Street, analysts said.

The realities of governing means that [a campaign] is not as useful an indicator of policy direction as it may appear,” Joe Nellis, economic adviser at MHA, said.

“More importantly, a contest risks delaying clarity on the government’s direction, prolonging uncertainty and adding to market volatility.”

Investor nerves were settled through the campaign by Burnham’s commitment to Rachel Reeves’ fiscal rules – even as he made a number of expensive promises including nationalisation of some utility firms, compensation for Waspi women and reviving the HS2 leg to Manchester.

“I think [bond markets] are seeing through some of the populist ideas that he’s spouted a little bit and saw them for what they are,” said Michael Field, chief equity strategist at Morningstar.

Burnham’s commitment to the fiscal rules “is a dose of reality and a dose of what you can really do once you get in there and and why previous Chancellors and Prime Ministers have been in hock to the bond markets…you can ignore them for a while, but ultimately you can’t ignore them forever,” Field said.

It was possible that the government’s budget deficit could be reduced under a Burnham-Streeting double act in Downing Street as the abrupt ousting of Starmer, and, not long ago, Liz Truss, focuses minds on fiscal discipline, he added.

“Ultimately, the most likely scenario here is that there’s a few things announced around the edges and maybe the deficit can be reduced over a long period of time and in a relatively efficient way such that they can point and say ‘look, we closed the gap a bit’.”

Bond markets ‘relatively comfortable’ with a Burnham coronation

Gilt yields were largely unmoved in the moments following Keir Starmer’s resignation and bonds rallied after Streeting backed his bid for the leadership.

The 10-year yield – a crucial metric for how much the government pays to borrow – was down three basis points by midday.

Oliver Faizallah, head of fixed income research at Raymond James, told Morning Wire this was “largely because the outcome had already been priced in”.

He said should the Burnham coronation proceed as expected, bond investors will be “paying very close attention to any rhetoric on the fiscal rules, planned spending and change in Chancellor”.

“As it stands, the lack of gilt market reaction shows the market does believe that Burnham is widely seen as the front-runner, and markets appear relatively comfortable with this prospect – particularly considering his recent rhetoric emphasising fiscal discipline,” he added.

A handful of names have been floated to lead the Treasury under a Burnham premiership with Wes Streeting viewed as a top candidate following his endorsement of the newly-minted MP.