London's top gilts traders should be having a big week. Maybe not

With Keir Starmer embattled as UK prime minster and gilt yields spiking, this looks like an exceptional time to be trading UK government bonds. 

Or not. 

Lizz Truss aside, the most notorious episode in UK macro trading history occurred 34 years ago. In September 1992, George Soros, Paul Tudor Jones and Bruce Kovner made over $2bn successfully betting that sterling would crash out of the European Exchange Rate Mechanism. Much of that was made by Soros alone.

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Betting that Keir Starmer will become the 7th ex-prime minister in a decade will not be nearly this lucrative. Starmer's potential exit will not create a definitive surge in gilt yields or a fall in the pound equivalent to the UK crashing out of the ERM. And although the Bank of England has been warning of leveraged borrowing by hedge funds in the gilt markets, today's hedge funds are different beasts to the hedge funds of 1992.

In 1992, Soros ran his own $1bn fund and leveraged it heavily to make his $10bn bet against the pound. If you're at a contemporary multistrategy hedge fund with a 5% drawdown limit on the underlying investment, this would be unwise. With a mere 0.5% loss, a contemporary Soros would be out of a job. 

Nor are top gilt traders in banks necessarily having the best of times. London's best sell-side gilt traders include the likes of Alex Foss at Citi, Mike Gough at Morgan Stanley, James Bucknall at NatWest or Guy Winkworth at Barclays. 

Speaking off the record, senior rates traders in banks tell us that these markets are not the money makers people might think. "I'd be surprised if there are any banks making a tonne of money off gilt volatility," says one. "The market has edge over politics and central bank reaction functions." Another senior trader in a bank agrees that it's a very busy, but not necessarily a very profitable time. "You don't tend to see the most profitable flows around political events," he says. Another says gilt traders don't make much money anyway. "They had one good year in maybe 2022," he suggests. " - It's a small market with a lack of talent."

Macro-focused hedge funds like Rokos, Caxton and Kirkoswald could emerge as bigger beneficiaries of gilt market volatility. Rokos was up nearly 5% in the three months through to April 2026 and has a long history of making big bets. Caxton reportedly lost $600m in March; the disintegration of another UK government might offer it a shot at redemption.

One sell-side gilts trader says the current market is less thematic than it might seem. "British politicians have learned they are slaves to the gilt market and are not going renegade," he says. "And Starmer is making this drag on and on, so the reaction is getting more muted." Gilts desks made more money during the Truss debacle, he claims. 

The most visibly excited person about the current market is not in London at all. Hugh Hendry left the UK in 2017 after closing his hedge fund, Eclectica Asset Management. He is now in St. Barts, where he has reinvented himself as the Acid Capitalist and a writer of Substacks. 

In his latest semi-stream of consciousness post, Hendry argues that Britain is bankrupt. The UK has a state it can't afford based on low interest rates, "funded by the willingness of foreign surplus capital to keep lending at rates made artificially cheap by a machine running abroad." That post World War II arrangement is collapsing as America redirects capital towards American interests, argues Hendry. And the British state can't cut spending because the political cost of doing so is too high. 

A wealth tax is coming, predicts Hendry. If money is made from spiking gilt rates it may have detrimental second order effects anyway. 

Image: Simon Dawson/ No 10 Downing Street

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