The market barely blinked at first. But as the smoke cleared over St Petersburg this morning, the bottom line became unmistakably clear: this conflict just took a costly turn. A Ukrainian drone strike, the deepest yet into Russian territory, has sent a shockwave through the Kremlin and rattled the usually stoic bond markets.
Gilt yields ticked up as traders priced in a higher risk premium. The human cost is one thing, but the financial fallout is another. Capital flight from Russian assets accelerated, with the rouble sliding against a basket of currencies.
British intelligence, ever watchful, now monitors for retaliation, which could further destabilise energy markets. The Chancellor will be watching the spread on UK debt closely. Fiscal responsibility demands it.
Central banks, already wrestling with inflation, face a fresh headache. Market volatility is the new normal, and this strike is a reminder that in war, the price of escalation is paid in yields. The City expects a response.
The only question is how much it will cost.
