Bond markets in UK - political turmoil rattles Gilts again

Renewed political leadership chaos combined with persistent concerns around whether UK government debt levels are sustainable in the long-term has sent Sterling lower and UK Gilt yields higher.

Where are Government Bond Yields

The benchmark 10 year Gilts yields reached levels similar to the Truss-era gilts crisis.  10 year yields closed the week (15th May 2026) at 5.17% from 4.48% at the end of 2025.
Long-term (where debt sustainability is a greater concern), 30 year Gilts yields reached highs not seen since 1998, and risk crossing over the 6% level.  30 year yields closed the week (15th May 2026) at 5.85% from 5.21% at the end of 2025.
Bond yields move inversely to values.  So year-to-date, the main UK bond index (and funds tracking it) have declined -3.13%. and over the last year, UK bonds have returned just +0.72%.
As we outlined in August 2025, we are concerned that UK Gilts yields are becoming “unanchored” from interest rate policy.  As longer term 30 year yields crossed the 5% threshold, we saw this as an early warning that debt dynamics, not just inflation expectations, are starting to weigh on investors’ confidence in the bond market.

How does this affect our research for investment managers and financial advisers?

Our concerns around the UK Government Bond market led us to recommend our professional clients to completely de-allocate from UK Gilts in July 2025 (as we had in December 2021 prior to the 2022 inflation shock).  In January 2026, we recommended a modest allocation to near-term (<5 year maturity) Gilts as inflation was moderating and real yields were looking attractive once again.  Short duration gilts are more stable as less vulnerable to inflation and interest rate volatility.
We reversed this recommendation at the outbreak of the US/Iran war, on the basis that because of the energy shock, UK would (as in 2022) be importing inflationary pressure that was negative for its currency and nominal bonds.
In a separate article, “Reinventing the 60/40 portfolio – an all-weather approach,” we explore what are the alternatives to bonds, when debt sustainability is in question, and inflation is on the rise.

How does this compare to other countries

30 year yields for the UK are in excess of other developed countries, showing that this is a particularly British problem.

Source: Bloomberg.com as at 12th May 2026

Why does the politics matter so much to the bond market?

For all their feelings Starmer and Reeves are seen by bond investors as relatively moderate and fiscally responsible – or at least wanting to be.  When confronted with hard decisions around cuts to make government books balanced, they have either backed down or taxed up.  By contrast, should Starmer lose and leadership transfer to a more left-leaning candidate, bond investors would be concerned that the government could become less fiscally responsible. ​

What has Andy Burnham actually said about the bond market?

In an interview with the New Statesman in 2025, Andy Burnham said the government had to "get beyond this thing of being in hock to the bond markets".
His vision is for ‘Manchesterism’ described as a combination of business-friendly socialism and public control of essential services. 
Since 2022, Burnham has made the case for nationalisation of transport, water and energy companies to tackle the cost of living crisis arguing that “privatisation got us into this mess”.
Our view is that the risk of a government debt crisis will not get the UK out of this mess.

What about other candidates?

​Other candidates whether Ed Milliband or any other Labour candidate is likely to be similarly left of Starmer/Reeves to be in line with a large faction of Labour MPs.  So whoever emerges as the front-runner, bnd markets are worried about a leftward lurch that could usher in a risk to government finances.

How to solve the UK debt problem?

There is (still) a need for structural reform that involves difficult political decisions.  Ironically, neither Johnson nor Starmer with their huge majorities took the initiative to enact that reform.  Johnson was interrupted by Covid and huge emergency borrowing, and then lost any political initiative to persistent party infighting that gave us Liz Truss and her infamour September 2022 “mini-budget”.  Starmer has attempted reform, but then back-tracked “in hock” to his more left-leaning backbenchers.
Our view is that the UK debt problem needs to be solved with three challenging steps.

1. Measures to stimulate economic growth: Debt/GDP ratios fall from economic growth, not from debt reduction
2. Measures to limit and cut government spending on non-essential expenditure
3. Conduct an “Operation Brit Twist,” to pay off long-term debt which trades at a growing discount to face value, by issuing shorter debt.

We outlined the rationale for an Operation Brit Twist in May 2025, following our March 2025 analysis of the so-called Mar A Lago Accord which also spoke to a US debt restructuring.

What does this mean for asset allocators

Absent structural reform, whether introduced internally by UK political leadership or imposed externally by the IMF, we remain concerned as regards the long-term viability of UK Government debt.
Asset allocators have a number of levers to reinvent the Bond allocation of a multi-asset strategy to ensure portfolio resilience.  We explore this in our separate article “Reinventing the 60/40 portfolio – an all-weather approach”