The bond market is trembling, but not because of a rate hike. British intelligence has flagged a worrying concentration of Russian armoured divisions near the Donbas city of Kramatorsk. This is not a drill.
The Kremlin is rolling the dice again, and the market’s risk premium on Ukrainian sovereign debt is already spiking. Capital flight from emerging markets will accelerate if this escalates. I have seen this playbook before: a build-up, a denial, then an incursion.
The cost of hedging against a full-scale assault is rising faster than gilt yields on a bad inflation print. The City is watching the Russian rouble fall like a stone. It is a classic signal of impending trouble.
The Chancellor will have to factor in higher defence spending and potential energy price shocks. This is fiscal drag by another name. My sources in Whitehall confirm the assessment is not alarmist: it is a matter of days, not weeks.
The bottom line is clear: uncertainty is the enemy of efficiency, and this will hit our portfolios before it hits our screens.
