June 2026 UK fixed income market roundup
Written by Luke Heritage
2nd July, 2026
June 2026 was distinctly a month of two halves for UK government bonds, with the first three weeks seeing yields drift lower, with 30-year gilts touching levels last seen in 1998, but this was shifted in the last week. Once PM Keir Starmer announced his resignation, government lenders became nervous once again, as they were in May. By the month's close, however, the 10-year gilt yield stood at roughly 4.8% and the 2-year at 4.137%, with the 30-year at around 5.5%. So overall, it ended a touch lower than May left off, but the underlying picture was much more volatile than the monthly moves suggest.
MPC and the bank rate
The Monetary Policy Committee met on 17th June and voted 7-2 to hold the Bank Rate at 3.75%, with the two against the vote, Megan Greene and Huw Pill, voting for a quarter-point hike to 4%.
Important things to note from the minutes were discussions that UK two-year overnight swap rates were running around 70 basis points above the pre-conflict level, two-year fixed mortgage rates were roughly 80 basis points higher than before the Middle East conflict began, and that investment-grade corporate bonds yields had risen by around 50 basis points during this window too, which shows quantified evidence that the energy shock has tightened financial conditions even before any rate move. In simple terms, what this means is that markets did not have to wait for the Bank of England to increase the base rate, but rather that the cost of borrowing has already increased anyway, leading to Governor Bailey's vote to hold explaining that "the higher energy prices of the past four months mean that there's already some inflationary pressure in the pipeline", further explaining that he was content with the current rate.
In terms of the Bank of England's own stock of gilts, it stands at £522bn as of June 17th, which I will track from edition to edition as the quantitative tightening programme may prove to be a large source of supply hitting the market into the future.
Gilt yields and the curve
As mentioned at the start, yields fell throughout most of June before the Starmer resignation news right at the month's end, introducing more political turmoil investors in May once feared.
With the way the bond yields finished in June, with the 2-year at 4.137% and 10-year at 4.8%, the yield curve's 2s10s spread ended at around 63 basis points, steeper than May's. This is quite reflective of the current climate, with a hawkish-leaning MPC (7-2 vote leaning towards rate hikes) meaning short-term maturing bond yields staying pinned or increasing, whilst the overall reduction in political turmoil for June compared to May leads to a net ease in the long end.
An important event from June includes the syndicate sale (a one-off loading off of bonds to private investors through financial institutions) of £9bn of the 5.25% Treasury Gilt 2041 on 9th to 10th June, priced at £99.03, thus generating a 5.35% yield and an order book the size of almost £116bn. This highlights very high institutional client demand with a bid-to-cover ratio of around 12.9x even during a volatile gilt phase as we have been in.
What is driving the market
The key drivers of the market have been briefly mentioned above, with the three most key events in my opinion including the slow unwinding of political panic, Middle East effects on oil prices, and Keir Starmer's resignation.
Firstly, it is clear that political turmoil was unwoven in the first three weeks of June, with local election shockwaves fading and Andy Burnham publicly committing to maintain existing fiscal rules. This certainly all led to a net reduction in yields compared to May when looking at yields from the start and ends of the months. Next, the Middle Eastern conflicts' effect on energy prices has certainly had an impact on inflation expectations, with crude oil and UK gas prices falling in speculation of a potential peace deal coming soon, leading to the MPC mostly being content to leave the base rate where it is. And lastly, the most consequential event in terms of intra-June analysis is definitely Keir Starmer's resignation on June 22nd, which reopened the political panic just as markets began to ease, setting up a leadership contest which we will see in July.
Just as a quick note, according to Calastone data, UK bond funds have kept attracting money with £1.06bn in net inflows, suggesting that investors continue to see value in locking in the current gilt yields.
Final comments
To be completely honest from a net perspective, June was a very boring month in terms of the overall move in yields, but within the month it told two main stories of political turmoil easing and also a respark of stress. However, the well-received syndication with the 12.9x bid-to-cover ratio and the UK bond fund inflows direct to a positive functioning market where demand is strong, even with real strain. Looking ahead to July, the story of Starmer will probably still be prevalent, meaning it is likely to be another volatile month, even if the net result from June is small.
Sources
Bank of England — June 2026 Monetary Policy Summary and Minutes
Calastone Fund Flow Index, June 2026
UK Debt Management Office — 9 June 2026 syndication preliminary
Hedgeweek — "Bond funds post third-strongest month on record as investors rotate from equities"