The UK government's cost of borrowing just hit levels not seen since the late 1990s. Thirty-year gilt yields touched 5.807% on May 13, the highest since 1998, while 10-year yields surged past 5.11%, a mark not reached since the 2008 financial crisis.
The catalyst this time isn't a banking collapse-it's political uncertainty around Prime Minister Keir Starmer's future, compounded by an energy-driven inflation problem.
Anticipated poor local election results for Labour have fueled speculation about a leadership challenge. Potential successors Andy Burnham and Angela Rayner are viewed as more fiscally liberal, meaning markets are pricing in the possibility of more borrowing.
The UK is the most exposed G7 nation to Gulf conflict-driven inflation due to its dependence on natural gas imports. The Bank of England may need to hike rates to 5.25% if energy costs don't ease.
British political chaos sending gilt yields into orbit has a recent precedent: September 2022, when Liz Truss's unfunded mini-budget triggered a market crisis. The Bank of England intervened with emergency bond-buying then, but doing so now while fighting inflation would be a delicate balancing act.
Bitcoin rose 5% to $68,200 on May 13 as gilt yields surged, echoing the 2022 Truss crisis when BTC gained roughly 20% following the initial gilt market panic. UK-based Bitcoin accumulation has reportedly risen amid fears of traditional fiat market stress.