TLDR
- UK 30-year gilt yield surged to 5.6%, the highest since 1998, sparking concerns about financial stability
- The bond market turmoil mirrors the 2022 UK pension crisis that led to Liz Truss’s resignation
- President Trump’s proposed tariffs, including 104% on China, are driving global market uncertainty
- The yield increase is on track to be the largest one-day move since October 2022
- Bitcoin and gold are being considered as diversification options amid rising bond yields
UK 30-year government bond yields soared to 5.6% on Wednesday, reaching their highest level since 1998.
This dramatic surge has revived memories of the 2022 pension crisis while raising fresh concerns about financial market stability. The spike follows President Donald Trump’s announcement of new tariffs, including a 104% levy on Chinese goods.
The bond yield increase is tracking to become the largest one-day move since October 2022, when former Prime Minister Liz Truss’s “mini-budget” triggered market chaos. On Monday alone, yields jumped nearly 19 basis points before Wednesday’s even steeper climb of more than 27 basis points.
The surge in UK gilt yields mirrors a broader climb in US Treasury yields. Since last Thursday, when the US equity sell-off began, the Nasdaq has dropped 10% while Bitcoin has declined 8%. During this same period, UK 30-year bond yields rose 8% and US 30-year yields increased by 12%.
Market Impact and Monetary Policy Expectations
The bond market turbulence has widened the spread between two-year and 30-year gilt yields to 167 basis points, the widest gap since May 2017. The spread widened by more than 27 basis points in a single day.
Interest rate futures now price in 85 basis points in rate cuts by the Bank of England this year. Markets see a rate cut of at least a quarter point on May 8 as a near certainty, with a roughly 10% chance of a larger half-point reduction. This marks a major shift from last week, when markets saw only a 50% chance of a May rate cut.
Despite the market turbulence, an auction of £4.5 billion of five-year gilts was nearly three times oversubscribed. However, the yield tail – a measure of whether below-average bids were successful – was the highest for any auction since November.
Finance Minister Rachel Reeves has pushed back against suggestions that Trump’s tariffs would require abandoning fiscal rules aimed at achieving a balanced current budget by 2029/30. Yet her fiscal update last month showed only a small amount of leeway to hit this goal.
Memories of the 2022 Pension Crisis
The current yield surge echoes events of 2022, when a surprise mini-budget announcement sent gilt yields soaring, crashed the pound, and exposed deep vulnerabilities in the UK pension system.
Many defined benefit pension schemes had adopted complex liability-driven investment strategies using leverage and derivatives to match long-term liabilities. As yields spiked, these funds suffered massive losses and faced margin calls, forcing rapid gilt sales and creating a destabilizing “fire sale” feedback loop.
At that time, UK pension funds held around 28% of the gilt market. The chaos was so severe that the Bank of England had to step in with emergency gilt purchases to halt the downward spiral. A Chicago Fed analysis later identified excessive leverage, asset pooling, and the limited depth of the gilt market as key structural weaknesses.
Alternative Investment Considerations
Charlie Morris, founder of ByteTree, believes investors will start seeking diversification into other assets.
“It appears that the UK has been living beyond its means for too long. It hasn’t balanced its budget since 2001, the gilt market has had enough,” Morris said. “Investors seeking diversification away from financial assets will not only buy gold, but bitcoin too.“
Former UK MP Steve Baker told CoinDesk,
“President Trump said he was using brute economic force—and he is. It’s time to rediscover free trade at home and abroad, fast, before this chaos wrecks our futures.”
Michael Metcalfe, head of macro strategy at State Street Global Markets, warned about potential implications:
“Higher yields are going to make it difficult politically to decide what to do next. If yields go up and stay up, this causes problems for the UK fiscal position and could put pressure on sterling as well.”
The market reaction highlights growing concerns about the global economic impact of Trump’s trade policies and their potential to disrupt supply chains, increase costs, and add pressure to already nervous markets.
