UK gilt yields have climbed to over 5% for 10-year bonds, driven by geopolitical tensions, persistent inflation and mounting concerns about Sir Keir Starmer's leadership. While this level might seem alarming, the real worry lies in how government bond markets have lost resilience across advanced economies, particularly in Britain where public debt has ballooned from 28.3% to nearly 100% of GDP since 2000.

The Office for Budget Responsibility projects public debt could reach 270% of GDP by the 2070s under current policies, driven by rising healthcare and age-related costs. This fiscal pressure combines with structural changes in the gilt market itself. The average maturity of UK public debt has shortened dramatically, increasing rollover risk as shorter-term gilts respond more quickly to Bank of England rate changes.

Traditional buyers like pension funds and insurers now hold just one-third of gilts, down from two-thirds in 1998-99. Overseas investors (31%) and the Bank of England (29%) have become the largest holders. Meanwhile, highly leveraged hedge funds pursuing relative value strategies have entered the market, borrowing amounts equal to or exceeding collateral values.

These non-bank investors increase the likelihood of sharp yield spikes and destabilising deleveraging spirals during market stress. With hedge funds trading positions up to 200 times their capital or using haircuts as low as 0.5%, the G30 warns this poses systemic threats to sovereign bond markets worldwide.