The U.K. holds local elections Thursday, but the bond market has already voted.
Yields on long U.K. government debt - the rate the U.K. pays to borrow money - just hit a 28-year high.
No votes have even been counted yet.
On Tuesday, the 10-year gilt yield climbed to 5.082%, its highest reading since 2008.
The 30-year gilt jumped to roughly 5.76%, a number it hasn't touched since 1998, while the 20-year yield hit a 28-year high.
When yields rise, bond prices fall. So a spike like this means investors are selling rather than buying, and U.K. debt is getting harder to place.
More than 4,800 local council seats are up for grabs Thursday, with Labour projected to lose as many as 2,000 of them.
Reform UK and the Green Party are expected to absorb the gains. That would be a serious blow to Prime Minister Keir Starmer, who is already taking heat inside his own party over fiscal policy, welfare cuts, and his pick of Peter Mandelson as ambassador to the U.S.
Backbench Labour lawmakers are reportedly preparing to demand Starmer either resign or set a date to step down, and names floating as replacements include Health Minister Wes Streeting, former Deputy PM Angela Rayner, and Greater Manchester Mayor Andy Burnham.
Starmer is the U.K.'s fifth prime minister in the past ten years, and bond investors have been keeping count.
This is starting to look familiar. In 2022, then-PM Liz Truss rolled out a budget packed with unfunded tax cuts.
Gilt yields blew out, pension funds wobbled, and the Bank of England stepped in to stop the bleeding. Truss was out in 44 days.
Nigel Green, CEO of deVere Group, told CNBC that bond traders still remember that period clearly. He warned a heavy Labour loss won't be shrugged off, with markets reading the result as a verdict on fiscal credibility, not just politics.
There is also a piece of recent history closer to home. Last July, gilt yields surged after Finance Minister Rachel Reeves was seen crying in parliament during a Labour rebellion over her welfare cuts.
The U.K. already has the most expensive government debt in the G7, with its 10-, 20-, and 30-year bonds all paying above 5%. Green said the country "doesn't have much room for error" given weak growth, high borrowing, and ongoing energy-driven inflation.
If Labour gets hammered Thursday and a leadership fight follows, gilt yields probably keep climbing before they settle. That puts more pressure on a government with very little room left to maneuver.
Nicolo Bragazza, a portfolio manager at Morningstar Wealth, told CNBC that political uncertainty is now baked into U.K. bond pricing.
Growth is weak, borrowing is high, and credibility is the only thing pinning yields where they are. Voters could test that on Thursday.
