UK bonds claw back losses as Starmer challenger fails to emerge

May 13 (Reuters) - British government bonds clawed back some ground on Wednesday as a clear challenger to Prime Minister Keir Starmer failed to materialise, his cabinet remaining intact despite some junior minister resignations a day earlier.

While tracking moves seen in international peers, gilts outperformed German, French and U.S. debt, with short-dated bonds faring best.

Twenty- and 30-year gilt yields - which on Tuesday hit new 28-year highs when Starmer's grip on power appeared to be fading - fell by 3 basis points each in early trade to 5.689% and 5.745%. GB20YT=RRGB30YT=RR

The recent rise in long-dated gilt yields in part reflects concerns around fiscal sustainability. Gilt investors are wary that any successor to Starmer could further increase borrowing.

"The bulk of MPs seem to want to shift leftwards, and more borrowing has been the path of least resistance in recent years. So, we think markets are right to price in higher yields," said Rob Wood, chief UK economist at Pantheon Macroeconomics, a consultancy.

Financial markets are watching closely for clear signs of fracture among members of his cabinet.

Earlier on Wednesday Health Secretary Wes Streeting, widely regarded as a potential successor to Starmer, arrived in Downing Street for a brief talk with the prime minister.

So far, only junior ministers have resigned, raising expectations that Starmer will for the time being remain as prime minister.

The two-year gilt yield, sensitive to interest rate expectations, fell by 5 bps in early trade to 4.502%, reflecting a fall in oil prices as investors awaited new developments in the Middle East.