[MARKET ANALYSIS] Gilts drop with UK PM Starmer to be presented with an ultimatum

A bearish start for fixed income as energy benchmarks climb after overnight rhetoric (see the feed for more), and with the intensifying scrutiny around UK PM Starmer weighing on Gilts and dragging peers lower as well. Bunds and USTs began the morning with modest losses, of a handful and around 20 ticks, respectively. While USTs haven't dipped much further, they are down to a 110-06+ low ahead of US supply and CPI. If the pressure continues, we look to 110-00+ from last week before the 109-24 contact low from March. Bunds saw a bout of pressure in the European morning, before the Gilt open, seemingly as the press reporting around UK PM Starmer intensified further early doors. Enough to send Bunds below the 125.00 mark. Gilts opened lower by 73 ticks and hit an 85.82 trough. Since, as the pressure on UK PM Starmer increases, we are down to a new 85.50 contract low, which has been enough to lift the 10yr yield to a 5.119% peak, firmer by c. 9bps, notching a fresh YTD high. In short, we await the outcome of the ongoing UK Cabinet Meeting, where Starmer will reportedly be given the chance to outline plans to step down and conduct an orderly transition, or face ministerial resignations. Just before the cabinet meeting began, we saw Junior Minister Fahnbulleh resign in the first ministerial-level resignation, and around the same time, the tally of MPs against Starmer hit the 81 threshold for a challenge. Note, this is largely symbolic as they do not all agree on one candidate to challenge; we await a potential move from Streeting.