Gilts posted their best week in nearly two years after Labour frontrunner Andy Burnham committed to UK fiscal rules. The rally pushed 10-year yields down 0.26 percentage points to just above 4.9%, marking the biggest weekly drop since August 2024. Market relief came as traders pulled back from bets on higher Bank of England interest rates.

Supporting the rally, data revealed lower-than-expected inflation at 2.8% in April and a 13-month low in business activity. Oil prices declined throughout the week, reducing inflation concerns. 30-year bond yields fell 0.25 percentage points to 5.6%, their best performance since late 2023. Weak labor market figures further fueled expectations for less aggressive monetary tightening.

The shift in market sentiment has reduced expectations for BoE rate hikes, with swaps traders now pricing in two quarter-point increases by year-end, down from two or three. UK borrowing costs remain the highest in the G7, but the recent data "reduced the BoE's room to make policy more restrictive," according to Fraser Lundie at Aviva Investors. The relief rally shows markets value concrete policy over speculation.