British government bond yields have been trading at their highest levels since the global financial crisis and their volatility has made them hard to trade. This is not because there are serious questions about the creditworthiness of the UK government.
Rather, it is because fundamental and technical factors have combined in such a way to cause the market to malfunction, leading to forced sales and sharp price falls. Can the gilt market be repaired?
Already, the Bank of England has stepped in to provide some stability by buying gilts. This reflects the reality that there are real-life implications from bond market dislocation. Sharp volatility, in what is normally a stable corner of the financial markets, could spill over into the real economy. This can come in the form of higher borrowing costs and knock-on effects on sentiment.