(Bloomberg) -- Ultra-long bonds are once again threatening to become a pain point for investors, as jitters over fiscal spending put one of the world’s most volatile markets this year back into the spotlight.

Bond traders got a reminder of the potential for wild swings in the market for 30-year debt and beyond on Wednesday when speculation about UK Chancellor of the Exchequer Rachel Reeves’ future sent gilt yields soaring. That spread pain to the US bond market, pushing Treasury 30-year yields around eight basis points higher in intraday trading.

These moves have shifted focus back to a part of the yield curve that has become increasingly volatile this year, serving as an outlet for investors’ anxiety about fiscal spending and political uncertainty. Ultra-long bonds tend to be less liquid than other maturities, making them more vulnerable to selling pressure — and a more obvious target for disgruntled bond investors.

“There is a bit of healthy action here in terms of thinking of the bond market still being the watchdog of governments,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “It takes the view that if you do these things that we deem are unsustainable, then we are going to penalize you by demanding a higher compensation.”

Governments are also rethinking the role of ultra-long bond issuance in their funding plans. Treasury Secretary Scott Bessent indicated earlier in the week it wouldn’t make sense for the US to ramp up sales of longer-term securities given high yields. Australia’s debt management office said it is considering scaling back ultra-long issuance. Japan had already announced plans to trim the supply of its longest bonds.

Treasury 30-year yields edged lower on Thursday in a potential sign traders don’t expect pressure on long bonds to turn into a prolonged selloff at this stage.

Fiscal Concerns

Turmoil in ultra-long bond markets partly reflects worries that governments are spending more than they can afford. The selloff in gilts came days after the UK government was forced to backtrack on welfare cuts. US President Donald Trump’s landmark tax and spending bill, which could pass this week, has fueled concerns about a widening fiscal deficit. Japan’s habit of overspending has for decades been a concern for investors and economists.

But these fears are being exacerbated by political risks. The gilt selloff came directly after Prime Minister Keir Starmer initially failed to back Reeves when she was questioned in parliament, fueling speculation that her time overseeing the economy may be coming to an end.

Starmer later gave the Chancellor his full backing but by then, the damage was done: The yield on 30-year gilts jumped by more than 20 basis points during intraday trading, the biggest move since a global bond rout on April 9. That was a more extreme move than other parts of the gilt curve, in part because of the lower liquidity at the long-end.

“The structural issue makes the long end likely to lose its mind more easily than any part of the curve,” said Amy Xie Patrick, head of income strategies at money manager Pendal Group. “It’s structurally just set up to be less liquid.”

There are signs that, in at least some big markets, demand and supply are approaching equilibrium. Japan’s 30-year government bond auction on Thursday got the strongest demand since February, helped by the finance ministry’s pledge to reduce offerings of 20-, 30- and 40-year debt by ¥3.2 trillion ($22 billion) through the end of March 2026.

That was a better response than auctions elsewhere in the region. Thailand’s 10-year benchmark bond sale on Thursday drew weak demand, weighed down by political turmoil after a court suspended Prime Minister Paetongtarn Shinawatra.

But Japan’s successful auction didn’t stop yields moving higher in the secondary market. Its 30-year bond yield rose around eight basis points to 2.96% on Thursday.

What Bloomberg Strategists Say...

“For all the effort of the MOF to provide support for Japanese long-term debt, they have no control over what’s happening in Treasuries or gilts and that is coming back to bite JGBs.”

Mark Cranfield, MLIV strategist

In theory, a potential dip in supply from countries such as the US, Australian and Japan will help soften the selling pressure — but some global investors are still wary.

“Why go further out the curve where you’re going to be more sensitive to these fiscal and political risk events that seem to be popping up with increasing frequency?” said Tom Nash, portfolio manager at UBS Asset Management in Sydney. “It’s just much easier and cleaner to be positioned long in the front-end.”