The best thing you can do when trading markets is to always embrace change. With the UK facing a run against its currency and a collapse in the gilts market, it is a big signal ushering in a new era in global markets.
The recipe that worked during the pandemic is but a total flop now as deficits and debt piling are issues that will no longer be brushed aside. During the early stages of COVID-19 and lockdowns, governments bailed out economies at a time when central banks promised to keep rates lower for as long as necessary to revive economic activity. Today, we're seeing quite the opposite.
As inflation becomes the number one priority for central banks, they are tightening policy in a rather aggressive manner and that has shattered the whole illusion of easy money in markets. Gone are the days that governments can just throw money at the problem without ramifications and the UK is finding that out the hard way. They won't be the last surely.
It's crazy to think that 2-year gilt yields paid 0.75% at the start of the year. Last week, it was 3.50%. Yesterday, it was 4.75%. That's a whopping 400 bps increase (!) in just nine months. If someone were to tell you that at the start of the year, it would be unfathomable and yet here we are.
Austerity is coming back and as Adam is warning, it is going to be more painful than before.