Why Britain’s Bond Market Is Sounding the Alarm

Summary

John Authers discusses the connection between political turmoil in the UK and rising gilt yields. He argues that fiscal concerns and political instability are pushing yields higher, reviving memories of past crises. The bond market is increasingly limiting government policy, and the UK may be confronting fiscal pressures earlier than other advanced economies.

• UK gilt yields have risen above levels seen during the Liz Truss crisis.
• Political instability from the Labour government and challenger parties raises spending risks.
• The bond market acts as a straitjacket on fiscal policy.
• UK's historical dependence on trade makes it more vulnerable to external pressure.
• The currency market used to be the main constraint; now the bond market has taken over.
• The US faces similar fiscal risks but benefits from dollar privilege and a larger closed economy.
• No clear Thatcher-like figure has emerged yet, but market forces may eventually force political change.