UK Default Protection Trading Jumps in Early 2025, Says ISDA

Investor demand for protection against a potential UK government default rose sharply in the first quarter of 2025, according to new data from the International Swaps and Derivatives Association (ISDA). The report shows that trading in credit default swaps (CDS) tied to UK government bonds more than doubled compared to the same period last year.

A CDS is a financial contract that acts like insurance. Investors buy it to protect themselves in case a borrower, in this case the UK government, fails to repay its debt. While the risk of the UK defaulting remains extremely low, the sharp rise in CDS activity suggests growing concern about economic and political risks.

“This increase doesn’t mean markets expect the UK to default,” said Emma Walsh, a fixed-income strategist at Ashridge Capital. “But with rising debt levels and a general election approaching, investors are being more cautious and protecting themselves.”

The UK’s debt-to-GDP ratio is now close to 100%, and with the Bank of England navigating inflation concerns and potential interest rate cuts, financial markets are closely watching policy decisions. Uncertainty about the outcome of the upcoming election and possible changes in government spending have also added to investor nerves.

ISDA noted that the UK was among the most heavily traded sovereign CDS markets globally during the first quarter, an unusual position for a country typically seen as financially stable. “The data reflects a wider trend,” the report said. “Investors are reassessing risk across all major economies.”

Despite the rise in CDS trading, UK government bond yields remained steady during the same period, suggesting that overall confidence in the country’s financial health remains intact. Many analysts believe the increase in protection buying is more about hedging against surprises than predicting a crisis.

“This is smart risk management,” Walsh added. “It shows investors are thinking ahead in a time of political and economic uncertainty.”

As the UK heads into a potentially eventful second half of the year, the increase in default protection trading is a reminder that even established economies are being viewed through a more cautious lens in today’s global market.