The U.K.’s bond market is under severe strain, with 30-year gilt yields surging to their highest level in nearly three decades.
Earlier this week, the yield on Britain’s 30-year bond climbed to 5.64%, the highest since 1998. “Yields in the U.K. are now 15 times higher than they were at the 2020 low,” wrote The Kobeissi Letter.
The spike reflects deepening concern over persistent budget deficits and heavy government borrowing, which are driving up term premiums and fueling inflation fears.
Economic problems, including sluggish growth and stubbornly high consumer prices, have only made matters worse, leaving the Bank of England with little room to maneuver.
Looking ahead, U.K. debt could balloon to 274% of GDP by 2073, underscoring what it called an unstable fiscal trajectory. While such projections stretch decades into the future, they highlight investors’ growing unease with Britain’s long-term financial outlook.
Making matters worse, “it appears that the U.K. is nearing stagflation for the first time since 2008,” The Kobeissi Letter warned, citing the toxic combination of rising prices, higher unemployment, and slowing growth.
Recent data show little progress. The economy expanded just 0.3% in the second quarter, down from an already modest 0.7% in the first.
While second-quarter growth was stronger than expected, Schroders senior economist George Brown said the rebound is unlikely to last.
“Hopes of a sharp rebound are likely to be dashed,” he told CNBC. “The labor market has softened, and capacity constraints mean even tepid growth is generating inflation pressures. With this in mind, we expect the Bank of England to keep rates on hold for the remainder of the year.”
U.K. is far from an isolated case
While the U.K. bond market faces a steep selloff, its trajectory reflects a broader global trend. In Japan, 30-year bond yields recently surpassed 3.2% for the first time on record.
In the United States, 30-year Treasury yields broke above 5% in May and were hovering near that level again this week, closing at 4.85% on Thursday.
The selloff in long-dated bonds has been widespread — what the Financial Times described as a “synchronized decline” driven by ballooning fiscal deficits.
In each case, investors are demanding greater compensation to hold long-term government bonds, fueling a global surge in yields.
Economists warn that central banks could eventually be forced to intervene to help governments finance their budgets — a dynamic known as fiscal dominance.
However, as Wall Street Journal columnist Spencer Jakab noted, such a move is considered the “nuclear option” because it risks triggering runaway inflation.
As InvestorsObserver reported, Harvard professor and former IMF chief economist Kenneth Rogoff believes “we have [already] entered the era of fiscal dominance,” as central banks come under growing pressure to keep borrowing costs artificially low.
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