Gilt yields surge

The pound lost around 1% on the US dollar yesterday as investors panicked following the rout in the gilt market.

The 30-yield gilt yield (5.7%), which indirectly impacts long duration mortgage rates, has now jumped to its highest level since 1997, while the 10-year (4.8%) is trading around its highest levels so far in 2025.

While this is partly a global issue, clearly there are domestic factors at play that are exacerbating the rout. Bond vigilantes appear particularly critical of what may be perceived as fiscal mismanagement from the government with the massive shortfall between spending and income almost certain to force further tax hikes in the autumn.

The problem facing the UK is that the further bonds continue to climb, the larger the government’s costs are to finance the public debt, and the greater the tax hikes will need to be in order to plug the gap, risking a deadly “doom loop” that could completely derail Britain’s economy.

We’re not there just yet, but all eyes will be on how Chancellor Reeves and how her team intend to proceed.