- It will be the three year anniversary of the Truss-Kwarteng mini-Budget on 23 September
- Bond yields spiked on 27 September 2022
- But 30-year gilt yields are now 0.4% higher*, so why isn’t there the same panic?
- Is Quantitative Tightening (QT) a risk to the UK gilt market?
- How pension changes might undermine demand for gilts
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“Tuesday 23 September 2025 marks the third anniversary of the Truss-Kwarteng mini-Budget, an extraordinary and calamitous episode which ultimately claimed the jobs of both the chancellor and the prime minister, and set the scene for a Labour victory in the 2024 general election. The mini-Budget sparked a sharp sell-off in the UK gilt market, which led to a Bank of England bailout and a wholesale government policy U-turn.
“But three years on from the mini-Budget, long-dated UK gilt yields are now actually higher. The 30-year government bond yield currently stands at 5.4% as at the close on 17 September 2025, after hitting a recent peak of 5.7% on 2 September 2025. At the height of the mini-Budget crisis, it closed at 5% on 27September 2022. So why is there not the same level of panic?”
Why isn’t there panic in the bond market?
“There are a number of reasons why the level of concern about UK gilt yields isn’t the same as September 2022.
- Speed
“Probably the biggest component in the mini-Budget gilt crisis compared to the situation today is the speed with which yields rose. Between 22 and 27 September 2022, the 30-year gilt yield rose by 1.2% in three trading days. By comparison the 30-year gilt yield has risen by 1.2% over the course of a year to reach its recent high of 5.7% (as at 2 September 2025). This has allowed investors to absorb and adjust to the rise in yields, which are also offset by income payments from the bonds. A more orderly market, even a declining one, also allows leveraged investors (such as LDI funds in 2022) to post collateral to maintain their positions.
- Global bond yields are higher
“Long-term bond yields are higher not just in the UK, but in the US and Europe too. At the height of the UK gilt crisis in the wake of the mini-Budget, the 30-year UK gilt was trading at 1.2% above the 30-year US bond and 2.9% against the 30-year German bond. Long-term gilts are still trading at a premium to those international comparators, but a significantly lower one, to the tune of 0.8% higher than the US and 2.2% higher than German government bonds. These premiums have risen since the start of 2023, but much more gradually and to a lower peak (so far) than in September 2022.
“The recent rise in bond yields is not just a UK phenomenon, as the market has digested stickier inflation and a wall of bond supply from governments. There are parallels here with 2022, as global yields were indeed rising throughout that year as inflation was stoked by the Russian invasion of Ukraine. However, the days immediately following the mini-Budget marked a temporary UK decoupling from the global bond market, suggesting more local factors were at play.
Source: LSEG Refinitiv.
- Mortgages aren’t so badly affected
“The nature of the recent sell-off in gilts also looks to be centred around the long end of the market, while in 2022 it was all across the curve. This is significant particularly in the 2-year and 5-year gilt market, which reflect short-term interest rate expectations that feed through into mortgage pricing. These are currently lower than during the mini-Budget crisis and more stable.
“The 2-year gilt yield currently stands at 4%, down from 4.4% at the beginning of this year. This compares to the 2-year gilt yield rising from 3.5% at the close on 22 September 2022 to 4.7% on the close of 27 September 2022. The recent rise in the 30-year gilt yield is indeed concerning, but such bonds are the preserve of insurance companies and pension funds, who don’t command much voting power at general elections. The 2- and 5-year gilt yields, by contrast, hit home on the high street through their association with mortgage pricing.
Source: LSEG Refinitiv.
- Inflation expectations
“While inflation is now above target and uncomfortably high, it’s nowhere near the levels it was at in 2022. At the time of the mini-Budget, the latest published inflation data for August 2022 showed CPI at 9.9%. Inflationary fears were high. A survey of market participants conducted by the Bank of England in early September 2022 shows than on average they expected inflation to hit 13.3% in 2023.
“Inflation is the nemesis of conventional bonds because it erodes the real value of their fixed income streams and the final capital repayment. It also spells interest rate rises from the central bank, which make bonds less attractive, forcing yields upwards. In such an environment, the fiscal stimulus injected by the mini-Budget pushed hard against the Bank of England’s attempts to curb inflation, and led to the market fearing even higher interest rates would be needed, with knock-on consequences for bond prices.
- Fiscal policy has returned to orthodoxy
“Orthodoxy might be a dirty word for Truss and her supporters when it comes to economics, but when you’re asking to borrow bucketloads of money, it turns out potential lenders like to stick to some established rules. Truss and Kwarteng announced £45 billion of unfunded tax cuts in the mini-Budget without any scrutiny or projections from the OBR, on top of an uncosted energy package which, at the time, the IFS reckoned could have cost £100 billion in its first year. The bond market was expected to swallow the extra borrowing this would entail without any numbers from the OBR and with no details of how the government planned to pay the debt back.
“Government borrowing is by no means in a great place now, but one thing we know about Rachel Reeves is she will live or die by her fiscal rules. We got a glimpse of how important that is in July, when the gilt market got a case of the jitters as the chancellor shed tears in parliament and it looked like she might be replaced, perhaps by someone willing to crank borrowing up.
“Balancing the books is important to the bond market, and the less credible, or indeed visible, the maths provided by the government, the higher the price it will pay to borrow. The OBR effectively works in the same way as an auditor, providing reassurance the numbers have been checked and aren’t just being window-dressed by executives. Ironically Truss and Kwarteng’s full frontal assault on the OBR has parked legitimate questions about the prominence of its role in policy-making and only served to strengthen its authority.”
Is QT a risk to the bond market?
“One of the repeated claims made by Liz Truss is that the Bank of England was partly responsible for the 2022 gilt sell-off because the day before the mini-Budget, it announced plans to start selling government bonds it had acquired through the Quantitative Easing (QE) programme, in a process known as Quantitative Tightening (QT). The Bank is still engaged in QT, so does this remain a threat to the bond market today?
“It’s true that on 22 September 2022, the day before the mini-Budget, the Bank confirmed it would commence selling gilts, albeit from 3 October. However, it had already set out these plans previously on 1 September and 4 August, and it had announced its intention to start selling gilts as far back as 5 May 2022. Indeed, on 3 February the MPC announced it had voted to start QT by not reinvesting the proceeds of maturing gilts it held from that point onwards.
“On none of these occasions did the prospect of the Bank of England selling its gilts cause a bond market meltdown, so it would be an odd coincidence if it sparked a market rout just as the mini-Budget was delivered. At the very least, if this was such a clear and present danger to the bond market, one would expect the government to know about it and take it into consideration when determining fiscal policy. In fact, on 22 September 2022, the day before the mini-Budget, the chancellor Kwasi Kwarteng wrote to the governor of the Bank of England to acknowledge the gilt sales planned by the central bank.
“The Bank of England has also successfully continued to sell down its gilt holdings since the mini-Budget without prompting a bond market meltdown. However it must be said, the Bank has just announced that it’s reducing its QT programme, and is shifting sales away from long-dated bonds, because demand in that part of the market looks fragile right now. This tells us that QT does of course have some impact on the gilt market and needs to be tailored to market conditions, though pinning the September 2022 bond meltdown on QT looks far-fetched.”
Pension funds and gilts
“At current levels and in the present circumstances, the bond market doesn’t appear unduly concerned about QT. However, as in 2022, the actions of pension funds do raise questions about the yields on long-term government bonds.
“Defined benefit pension funds have historically been keen buyers of long-dated government bonds, but the switch from defined benefit to defined contribution schemes means that over time the gilt holdings of the pensions sector can be expected to decline, especially seeing as annuities have become less popular since the Pension Freedoms were introduced a decade ago.
“This does present a headwind to demand for long-dated government debt, which is also exacerbated by the government’s drive to get pension funds to invest in private assets such as smaller companies and infrastructure. If the government is successful in this drive, it will serve to lever pension schemes out of their traditional habitat of UK gilts. As they say, be careful what you wish for.”
*Source for all bond yield data is LSEG Refinitv, as at 17 September 2025.
