MW Why Britain's bond market is in free fall as key yield reaches 17-year high
By Steve Goldstein
Angela Rayner, a Labour Party MP and former deputy prime minister, could become the next U.K. prime minister.
Bond markets across the globe are under pressure, but the U.K. government bond market is under attack more than other developed markets.
The yield on the benchmark 10-year U.K. government bond BX:TMBMKGB-10Y, called a gilt, rose as high as 4.91% on Friday, marking the highest yield since July 2008 and approaching the psychologically important 5% level.
It was 4.23% before the U.S. and Israel attacked Iran. Yields move in the opposite direction to prices.
The equivalent maturities on the government bonds in the U.S. and Germany have risen 36 and 32 basis points, respectively.
That backup in yields is tied to a surge in oil prices and the worries - as expressed by the Bank of England on Thursday - that energy costs will be included in the prices of other goods and services. Markets have priced in as many as three Bank of England rate hikes this year.
But indexed-linked gilts - the U.K. equivalent of Treasury inflation-protected securities - should bake in worries about oil. After all, they're adjusted by inflation. Yields on the 10-year index-linked gilts have climbed as much as 19 basis points since a special election in the Gorton and Denton constituency, in which the Green Party eked out a victory.
That's led to the view that Keir Starmer's days in offices are numbered. Betting site Betfair is showing a 70% probability that Starmer will leave office this year.
The most likely successor is seen as Angela Rayner, who is among the politicians to Starmer's left in the Labour Party and this week gave a speech saying the party has to do more to show they're on the side of working people.
"Spikes in gilt yields in response to political headlines show that investors are still nervous that political change could lead to looser fiscal policy and higher inflation," said Andrew Wishart, senior U.K. economist at Berenberg.
"Investors are as unwilling to fund higher public spending as they were Liz Truss's tax cuts. Abandoning fiscal consolidation would lead to a rise in government borrowing costs that displaces any room for higher public spending and forces the government to reconsider."
The move higher in gilt yields also came after data on Friday showed a larger-than-expected budget deficit in February of GBP14.3 billion.
"It's certainly alarming considering that all of this come ahead of the massive spike in gilt yields that will push interest payments even higher as the BoE is anticipated to raise rates this year," said David Stritch, currency analyst at Caxton.
-Steve Goldstein
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March 20, 2026 09:22 ET (13:22 GMT)
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