UK bond market issuing Truss-era warning to Reeves

Britain’s bond market has fired a Truss-era style warning shot to the UK government, with long-term borrowing costs hitting their highest level in nearly three decades.

The surge in yields will force Chancellor Rachel Reeves to weigh politically explosive choices in her first autumn Budget next month, says deVere Group, one of the world’s largest independent financial advisory and asset management organizations.

The yield on 30-year UK government debt rose to 5.68% on Tuesday, surpassing the highs reached earlier this year and climbing to levels not seen since 1998. Rising yields mean higher borrowing costs, tightening the Treasury’s already limited fiscal headroom.

“The markets are making their view brutally clear,” says Nigel Green, CEO of deVere Group.

“The message from the bond market is the same as the one that humiliated Liz Truss: fiscal credibility cannot be faked. Reeves will have no choice but to deliver tough measures—either tax rises, spending cuts, or both—if she wants to prove that Britain’s debt can fall in line with her fiscal rules.”

The surge in gilt yields comes against a backdrop of global bond market turmoil. Investors have been dumping long-dated debt, demanding higher returns in the face of sticky inflation and mounting government borrowing across advanced economies.

In the US, Donald Trump’s sweeping tax cuts and new spending plans are projected to add trillions to the deficit, pushing Treasury yields sharply higher.

“These pressures are not confined to Britain, but the UK is especially exposed because of its debt profile and its recent history,” Nigel Green notes.

“Investors still have the scars of the Truss-Kwarteng debacle. They will punish any hint of unfunded promises or fiscal sleight of hand.”

The immediate impact is stark. Higher yields mean it will cost more to finance government debt, squeezing out space for Reeves’ priorities and heightening the risk that interest payments spiral further.

“Every percentage point higher on long-term borrowing costs drains billions from the Treasury’s coffers. That is money that cannot be spent on public services, tax relief, or investment. The bond market is dictating the choices politicians thought they could defer,” says the deVere CEO.

The timing could hardly be worse. Reeves is preparing her first Budget under a Labour government determined to prove its economic competence. Yet with borrowing costs surging, she faces the unenviable task of balancing fiscal discipline with political promises.

“Markets are asking whether Reeves can walk the line between responsibility and delivery.

“The Budget will be her moment of truth. If she falters, borrowing costs will spike further, sterling will suffer, and confidence will drain,” warns the deVere chief executive.

The bond sell-off has not been confined to gilts. Across Europe, long-dated yields have been rising, while in the US the benchmark 10-year Treasury yield is hovering near its highest in 17 years. The global nature of the shift reflects deep unease about inflation persistence, ballooning deficits, and governments’ willingness—or ability—to tighten belts.

Precious metals have surged as investors seek safety. Gold pushed to a record high of $3,508 an ounce on Tuesday, while silver breached $40 for the first time since 2011. “The rally in gold tells its own story,” says Nigel Green.

“Investors are hedging against fiscal irresponsibility, currency weakness, and the erosion of trust in political systems. The parallel moves in bonds and gold highlight the fragility of the global financial environment.”

In the UK, the stakes are particularly high because Reeves has set herself the rule of having debt falling as a share of GDP within five years.

“The credibility of that rule is already in doubt,” Nigel Green comments. “The bond market is effectively testing whether she has the courage to take politically toxic decisions. Without credible action, the UK risks another market revolt.”

The Chancellor is expected to face fierce opposition to any welfare cuts, while tax increases would be politically painful.

But Nigel Green argues the choices cannot be ducked. “The Truss crisis proved that markets are stronger than manifestos. The UK government must show it can make the numbers add up—or it will be forced into retreat by the weight of borrowing costs.”

He concludes: “Reeves’ Budget will not just be a fiscal event. It will be a credibility test in front of global investors.

 “The bond market has already delivered its warning. If Britain ignores it, the consequences will be swift and severe.”