Political turmoil in Britain is spooking overseas bond investors, with about one-third of UK government debt held by foreign investors who can easily shift money during crises. Prime Minister Keir Starmer faces leadership challenges after his Labour Party suffered significant defeats in local elections, creating uncertainty that echoes the 2022 Liz Truss crisis when yields surged.

UK 30-year yields now exceed 5.7%, the highest since the late 1990s, yet many investors remain wary. Swiss private bank Edmond de Rothschild advises clients to avoid long-maturity gilts, citing political uncertainty against an already challenging economic backdrop. The UK bond market is "significantly less liquid" than German and French peers, according to the bank.

The UK's national debt stands at its highest level relative to the economy since the 1960s, creating vulnerability to political shifts. With yields more than two percentage points higher than Germany's, some managers see relative value in UK bonds despite the risks. Market participants wait for political resolution to restore confidence in UK policy stability.