bonds

The UK bond market is currently experiencing a period of intense volatility, with the yield on 30-year government bonds, known as gilts, climbing to its highest point since 1998.

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On Tuesday, 30-year gilt yields rose as much as 0.14% to 5.79%, their highest level this century, before dipping slightly to around 5.6% at the time of writing.

The yield on the 10-year gilt also climbed as much as 0.15% to 5.11%, very close to the 18-year high of 5.12% hit earlier in the Iran war. It has since lowered somewhat to roughly 4.93% on Thursday.

Bond prices and yields have an inverse relationship. Bond yields rise when prices fall in order to increase investment attractiveness as demand for the debt weakens.

The surge in gilt yields indicates that investors currently perceive UK debt as a riskier prospect than other lending options, requiring a larger premium to commit their capital over the long term.

Presently, there are several reasons for this evident but abnormal lack of confidence.

The primary catalyst is the fear that the Bank of England may be forced to keep interest rates higher for longer to mitigate the chance that inflation will remain “sticky” and not return to the 2% target as quickly as previously hoped.

This estimation has been fuelled by surging energy prices due to the disruption caused by the Iran war. Gilts have continuously sold off during the conflict.

Speaking to Euronews, Richard Carter, head of fixed interest research at Quilter Cheviot, added that “the UK is expected to be the worst hit developed economy by events in the Middle East due to its reliance on energy imports, so the longer energy prices remain elevated, the deeper the pain the country is likely to experience.”

Beyond geopolitics and global energy markets, there are many domestic factors currently contributing to the exceptional distrust in UK debt.

Keir Starmer, fiscal policy and local elections

Political uncertainty and fiscal policy are also playing a central role in the recent and severe gilts sell-off.

In 2024, after Keir Starmer’s election, the Labour party pledged “fiscal discipline” and established a long-term framework in the Autumn Budget to distinguish the new government’s approach from the former.

The plan introduced the “Stability Rule” mandating that the current budget, which covers day-to-day costs such as public sector salaries and welfare, must be in surplus by the end of 2029/30. This effectively prohibits borrowing to fund the ongoing operations of the British state.

Additionally, the “Investment Rule” was also put forward to target the national balance sheet. This norm requires Public Sector Net Financial Liabilities (PSNFL) to be falling as a percentage of GDP within the same timeframe as the “Stability Rule”.

By using PSNFL rather than the traditional measure of net debt, the UK Treasury has more room to borrow for long-term capital projects like infrastructure and green energy, which are technically classified as “investments” rather than “spending”.

Finally, the Budget Responsibility Act 2024established a “fiscal lock”, legally preventing any significant tax or spending changes from being introduced without an independent assessment from the Office for Budget Responsibility (OBR).

Despite all these rigid guardrails, bond markets are now sceptical because investors fear political necessity will eventually override fiscal prudence.

Recent scrutiny of Starmer has intensified as he faces a mounting challenge from the left of his party, where dissenting voices are calling for a shift away from “fiscal conservatism” to address funding crises in the NHS and local government.

On top of that, the disastrous appointment of Peter Mandelson as Britain’s ambassador to Washington, and the revelations of his past friendship with Jeffrey Epstein, have severely damaged Starmer’s administration over the last few months.

The problems have culminated in the local elections taking place in 136 authorities for more than 5,000 council seats on Thursday. More than half of the seats up for grabs this week are being defended by Starmer’s party.

Analysts project that Labour will suffer a massive loss and potentially end up over 1,000 councillors down. Any major setback will certainly increase internal pressure to oust Keir Starmer as the leader in which case snap elections could be triggered.

The head of markets at AJ Bell, Dan Coatsworth, explained to Euronews that “investors will be watching bond markets like a hawk over the coming days as the results of the UK local elections are released. Any major setback to Labour will fuel calls for Keir Starmer to be replaced as prime minister and if that happens, bond markets will want to know who is taking over.”

“The obvious challengers, Angela Rayner and Andy Burnham, are seen as candidates who might push for greater government borrowing and spending, which could take gilt yields even higher. Fundamentally, there is a real risk of gilt yields soaring if Labour experiences a wipeout in the local elections,” Coatsworth added.

Speaking to Euronews, the head of fixed interest research at Quilter Cheviot, Richard Carter, conveyed the same sentiment.

“The uncertain UK political backdrop has played a role ahead of the local elections with gilt investors concerned about a Labour Party lurch to the left should Keir Starmer either be replaced or have little choice but to appease his backbenchers in the wake of challenging results.”

Effectively, these local results are no longer just a measure of regional popularity, but a high-stakes verdict of political viability that could determine the long-term stability of British borrowing costs.

The cost to the UK Treasury, businesses and households

For the British government, the consequences of the ongoing bond market shift are measured in billions of pounds as the UK’s debt-interest bill is highly sensitive to fluctuations in gilt yields.

According to estimates from fiscal watchdogs, every 0.25% rise in government borrowing costs adds approximately £2.5 billion (€2.9bn) to the annual debt-servicing cost. A 0.5% increase, which has already been observed this spring, therefore requires the UK Treasury to find an extra £5 billion (€5.8bn) every year just to pay interest.

The rise in gilt yields also has a direct and immediate impact on the real economy as they serve as the benchmark for pricing a vast array of financial products, most notably fixed-rate mortgages.

As yields climb, lenders adjust their swap rates, which inevitably leads to higher monthly repayments for millions of homeowners looking to refinance.

Businesses also feel the squeeze. The cost of corporate loans and commercial credit is often tied to the yield curve. When the state has to pay more to borrow, the private sector follows suit, potentially stifling investment and slowing economic growth.

“A gilt yield shock might be called a stealth tax, but it is not an intentional one. It would be the knock-on effects of bond prices falling and yields going up, which can negatively affect asset prices and tighten financial conditions,” Coatsworth told Euronews.

“Consumers would experience higher mortgage costs and potentially spend less money, particularly if companies scale back hiring if their borrowing costs rise from higher gilt yields, as the two are intertwined. It could also lead to lower public spending and pave the way for tax rises,” Coatsworth added.

Every increase in the cost of debt limits the amount of capital available for private innovation and reduces the disposable income of households already struggling with the cost of living.

LONDON — The challenge for King Charles III as he arrives in the United States this week is, as always, to live up to his mother’s example.

The late Queen Elizabeth II wowed Congress in 1991 with a speech that celebrated the shared democratic traditions of Britain and the United States, quoted Abraham Lincoln, Franklin D. Roosevelt and Ralph Waldo Emerson, and highlighted the deep bonds between the two nations.

Those themes will also be at the top of Charles’ agenda as he celebrates America’s 250th birthday and seeks to calm tensions surrounding Prime Minister Keir Starmer’s refusal to support President Trump’s war against Iran, said Douglas Brinkley, a presidential historian at Rice University in Texas.

“We’ve got to always make the distinction that there’s a difference between the government of the U.K. and the kings and queens of Great Britain, who are really always coming to try to put [on] a good face,” Brinkley told the Associated Press. “Politics come and go; prime ministers, presidents, come and go; but there’s something deeper about the special relationship between the United States and the U.K.”

Charles and Queen Camilla begin a four-day trip on Monday, when they will have tea with the president and First Lady Melania Trump, then tour the White House beehive, in a nod to the king’s focus on the environment.

The formal arrival ceremony will take place Tuesday, with a 21-gun salute, brass bands playing the national anthems of both countries and a contingent of U.S. service members passing in review. The ceremonies will be followed by a meeting between Trump and Charles.

Behind the scenes

But beneath the pomp and pageantry will be a carefully choreographed diplomatic event staged, like all royal visits, at the request of the British government. Starmer resisted pressure to cancel it after Trump belittled the British military’s sacrifices in Afghanistan and criticized him personally for failing to back the U.S. in its war alongside Israel against Iran.

Despite those tensions, Trump has continued to speak warmly about Charles.

“History has shown that President Trump really tries to be impressive whenever he’s dealing with British royalty,” Brinkley said. “And I’m sure it’ll be the same this time around.”

Ever since 1939, when King George VI became the first British monarch to set foot on the soil of the country’s former colony, there’s been a special sort of excitement whenever the royals come to the United States.

Take that first visit, which took place as World War II loomed over Europe. The royals toured the East Coast and attended a picnic at President Roosevelt’s private home in Hyde Park, N.Y. “King tries hot dog and asks for more,’’ declared the New York Times.

But the big moment was when the royals traveled to Mount Vernon to lay a wreath at the tomb of George Washington. It showed respect at a time of isolationism.

“People could see the handwriting on the wall and know that it was going to be important for the United States and Britain to stay strong for fighting against Hitler,” said Barbara Perry, a presidential scholar at the University of Virginia’s Miller Center.

But bonding over sausages had broader benefits, helping the royals build links to the general public as well as its leadership. After war broke out in September 1939, Queen Elizabeth, the wife of George VI and mother of the future Elizabeth II, wrote to First Lady Eleanor Roosevelt to say how moved she’d been by letters from Americans who enclosed small sums for British forces.

“Sometimes, during the last terrible months, we have felt rather lonely in our fight against evil things, but I can honestly say that our hearts have been lightened by the knowledge that friends in America understand what we are fighting for,’’ she wrote.

The queen’s connection

Queen Elizabeth II built on those relationships, making four state visits to the U.S. during her 70-year reign. She joined President Ford in celebrating America’s bicentennial in 1976 and met with President George W. Bush in 2007 as British and American forces fought in Iraq and Afghanistan.

Smoothing turbulent waters and reminding both sides about their common bonds were what those trips were all about.

Charles’ visit will be no different. It includes a commemoration of the Sept. 11, 2001, attacks, a ceremony honoring fallen service members and an event to be attended by Queen Camilla to mark the 100th anniversary of Winnie the Pooh stories by British author A.A. Milne.

Certain events will be avoided.

The royals won’t meet with Jeffrey Epstein’s victims, despite calls for the king to address his accusations related to his brother Andrew’s links to the convicted sex offender. Nor are there plans for Charles to meet with his son Prince Harry, who has been a critic of the monarchy since giving up royal duties and moving to California.

Those issues aren’t the priority, said Robert Hardman, author of “Elizabeth II: In Private. In Public. The Inside Story.”

“He’s going because 250 years ago the Founding Fathers of the USA kicked out his great-times-five grandfather, and he’s going to say, `No hard feelings, it’s been a great divorce, we’ve had a lovely 250 years and let’s reflect on the high points,’’’ Hardman said. “I mean, there are going to be some very, very large elephants in the room during that visit … but, you know, there are plenty of other things for the king to focus on.”

History, not politics

Charles’ speech to a joint session of Congress offers the chance to deliver the message that long-term friendship is more important than transient disputes.

He is also likely to offer a bit of humor, as his mother did when she addressed lawmakers in 1991.

Wearing soft peach amid a sea of gray suits, the diminutive monarch began her remarks with a joke about an earlier blunder at the White House when her lectern was so tall it obscured the audience’s view of her.

“I do hope you can see me today from where you are,’’ she deadpanned.

The chamber erupted in laughter. A standing ovation followed. Then she launched into a speech about democratic values, the rule of law and the Atlantic Alliance — the foundation of NATO.

Those are values that critics of the current U.S. administration say it has retreated from in recent years. But Charles will offer his own take on those ideas, Brinkley said.

“The theme of the speech is going to be American exceptionalism, American history, the importance of U.S.-British alliance, and some memories from the past,” he said. “But also about the love affair the two countries share with each other, even though it goes over rocky rapids from time to time.”

Kirka writes for the Associated Press.

Norway is preparing to lift restrictions preventing its $2.2 trillion sovereign wealth fund from investing in government bonds issued by Syria.

The move follows the political transition after the ousting of Bashar al-Assad and the rise of Ahmed al-Sharaa, whose government has been seeking economic recovery and international reintegration after more than a decade of war and sanctions.

At the same time, Norway plans to newly restrict investments in bonds issued by Iran, aligning with ongoing international sanctions.

Policy Shift and Financial Context

The Norwegian sovereign wealth fund, the largest in the world, plays a major role in global financial markets. Its investment decisions often influence broader investor behaviour.

The updated policy removes Syria from the exclusion list for government bonds while adding Iran, reflecting changing geopolitical and sanctions dynamics.

Although the fund does not currently hold investments in Middle Eastern government bonds, the policy shift opens the door for future allocations and signals a reassessment of risk and legitimacy.

Geopolitical Significance

Norway’s decision represents a notable step toward Syria’s re-entry into the global financial system. It comes alongside other developments, including the restoration of Syria’s financial links with international institutions after years of isolation.

The move also highlights a divergence in how states are being treated: while Syria is gradually being reintegrated, Iran remains economically isolated due to continued tensions and sanctions.

As one of the world’s most influential sovereign investors, Norway’s stance could encourage other countries and institutions to reconsider their own restrictions on Syria.

Analysis

The decision reflects a broader recalibration of international economic engagement based on political change and shifting strategic priorities. By opening the possibility of investment in Syrian bonds, Norway is signalling cautious confidence in the new government’s direction and stability.

At the same time, the move remains largely symbolic in the short term. The wealth fund has no immediate exposure to Syrian debt, and actual investment will depend on risk assessments, market conditions, and institutional safeguards.

More importantly, the policy underscores how financial tools are increasingly used as instruments of foreign policy. Inclusion or exclusion from global capital markets can legitimise governments, incentivise reforms, or reinforce isolation.

In Syria’s case, gradual financial reintegration could support reconstruction and economic recovery, but it also raises questions about governance, transparency, and long-term stability after years of conflict.

With information from Reuters.

Yields on government debt across European countries and the United States have been rising since the start of the Iran war.

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Investors are demanding higher yields as confidence in the global economy has cratered due to the severe negative impact of the conflict on energy markets, supply chains and Middle Eastern infrastructure.

The 2-year notes, sensitive to near-term rate expectations, have risen faster than their 10-year counterparts in a classic bear-flattening move, while longer-dated yields reflect worries over the economic drag caused by more expensive energy.

Speaking to Euronews, BCA Research’s Chief Fixed Income Strategist, Robert Timper, explained that “the aggressive bear flattening of yield curves reflects a hawkish monetary policy repricing in response to inflation fears stemming from the Iran war”.

“The front-end [2-year yields] is more sensitive to changes in monetary policy and has therefore risen more than the long-end [10-year yields] in response to investors’ anticipation of more hawkish central bank policy,” Timper added.

Historically, this specific curve behaviour often precedes an inverted yield curve, which is a well-recognised indicator of a potential economic recession.

European bonds bear the brunt of the sell-off

The repricing has been most pronounced in Europe, with the UK bond market feeling the biggest pressure.

Since the start of the conflict, the 10-year UK gilt yield has risen from 4.2% to a high of over 5% while the 2-year note yield jumped from 3.5% to a peak of 4.6%.

Timper explained to Euronews that past inflation experience has proved decisive, stating that “rate hikes in the UK are more likely than elsewhere because inflation has been more elevated than elsewhere, and the risk of inflation expectations unanchoring is therefore higher.”

On Wednesday, AJ Bell’s investment director Russ Mould highlighted the UK-specific implications in a detailed press release, noting that the 10-year gilt yield is hovering near 5% for only the third time since 2008 while the 2-year gilt yield comfortably exceeds the Bank of England base rate.

Mould also explained that the gap between the 10-year gilt yield and the FTSE 100 dividend yield has widened to more than one-and-a-half percentage points, making UK equities relatively less attractive.

Elsewhere in Europe, bond yields experienced similar surges.

Germany’s 10-year bund yield increased from 2.65% to around 3%, nearing 15-year highs, while the 2-year note yield climbed from roughly 2% to 2.65%.

In France, the 10-year OAT yield jumped from 3.2% to above 3.7%, approaching 17-year peaks, while the 2-year note yield has risen from 2.1% to over 2.8%.

As for Italy, the 10-year BTP yield was at around 3.3% before the Iran war and has now surpassed 3.9%, approaching two-year highs, while the 2-year note yield has increased from roughly 2.15% to 3%.

In every single one of these bond markets, the yield on the 2-year notes has risen faster than their 10-year counterparts.

The 30 and 20-year bond yields are also all trading higher which denotes deteriorating confidence in the long-term growth prospect of the respective European economies.

US Treasuries face comparable headwinds

Across the Atlantic, US Treasuries have followed a similar trajectory, though the sell-off has been less severe than in the UK for example.

The 10-year note yield has risen from around 3.9% to a peak of 4.4%, reached on Monday, and is currently trading at 4.37%.

Meanwhile, the 2-year note yield increased from 3.35% to a high of over 4%, and it is hovering 3.9% at the time of writing.

The yields on both notes have hit an 8-month high.

Timper’s analysis places US bond performance close to that of the euro area, reflecting broadly comparable inflation histories and policy outlooks. There is scant evidence of investors fleeing European bonds for US Treasuries as a safe-haven trade.

Speaking to Euronews, Timper explained that such shifting flows would be more visible in currency markets as the US dollar benefits from being the predominant denominator for energy exports.

For now the message from bond markets on either side of the Atlantic is consistent, the Middle East conflict has rewritten the near-term outlook for inflation, monetary policy and borrowing costs.

WASHINGTON — The State Department says it is adding 12 countries to an expanding list of nations whose citizens must post bonds of up to $15,000 to apply for U.S. visas.

Effective April 2, passport holders from Cambodia, Ethiopia, Georgia, Grenada, Lesotho, Mauritius, Mongolia, Mozambique, Nicaragua, Papua New Guinea, Seychelles and Tunisia will be required to pay the bond, which is refunded if the visa application is denied or, if granted, the person adheres to the terms of the visa.

That’s according to a notice posted to the State Department website on Wednesday.

After April 2, there will be 50 countries whose citizens are subject to the requirement, which was rolled out by the Trump administration last year as it cracked down on visa overstays and more broadly moved to curtail illegal migration.

Under the program, visa applicants from designated countries, many of which are in Africa, that have high overstay rates, have to post bonds of $5,000, $10,000 or $15,000 depending on their circumstances and the discretion of the consular officer processing the application.

“The visa bond program has already proven effective at drastically reducing the number of visa recipients who overstay their visas and illegally remain in the United States,” the department said, adding that almost 97% of the nearly 1,000 people to have posted the bond had not overstayed their visa.

The full list of countries is here.

Lee writes for the Associated Press.