UK Borrowing Costs Climb to 5.6%, Rekindling Anxiety Over 2022 Pension Turmoil

Bond Market Turbulence Returns as UK Yields Climb to 5.6%, Markets Haunted by Pension Crisis Echoes

A sharp rise in UK government borrowing costs is stirring painful memories of past market dislocations, as the 30-year gilt yield surged to 5.6% on Wednesday — a level not seen since 1998.

The dramatic jump reflects mounting investor anxiety over the global economic outlook, with rising trade tensions and inflation risks triggering widespread risk-off sentiment. The move follows a steep climb in U.S. bond yields and comes amid broader volatility in global markets.

Since the latest downturn began last week, the Nasdaq has fallen 10%, while bitcoin (BTC) — often seen as a macro hedge — has slipped 8%. Yields on long-term UK and U.S. bonds have risen 8% and 12% respectively in that same window.

Charlie Morris, founder of ByteTree, sees a turning point for capital flows.

“The UK has been running fiscal deficits for over 20 years. Eventually, the bond market demands discipline,” Morris said. “In response, some investors are moving out of traditional financial assets and into alternatives like gold — and increasingly, bitcoin.”

The bond sell-off has been further fueled by President Trump’s new wave of tariff threats, which have raised fears of a global trade breakdown. Supply chains are once again in the spotlight, and inflation expectations are creeping higher.

Former MP Steve Baker warned in a statement to CoinDesk that the situation could deteriorate quickly.

“We’re watching a slow-motion repeat of past mistakes. The only way out is a recommitment to free and open markets, before protectionism does lasting damage,” Baker said.

The spike in yields has reopened wounds from the UK’s 2022 pension crisis. Back then, a surprise mini-budget sent long-dated bond yields surging, triggering catastrophic knock-on effects for defined benefit pension schemes reliant on liability-driven investment (LDI) strategies. These funds were forced to offload gilts at pace to meet margin calls, triggering a destabilizing feedback loop.

The Bank of England was ultimately forced to intervene with emergency gilt purchases to prevent broader contagion. Analysts later concluded that a mix of high leverage, market illiquidity, and poor risk oversight contributed to the near-meltdown.

With yields now soaring again and fiscal imbalances unresolved, investors are bracing for another round of stress — one that could once again test the resilience of the UK’s financial infrastructure.

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