Written by our senior editor Elias Sanchez
Public opinion and academia are divided over bond markets. Both sides present their arguments. In this context, bond yields act as thermometers, revealing the intricacies of this relationship.
A clear example of this is Andy Burnham’s remark: “The UK is in the dock of bond markets.” This writer interprets Mr Burnham’s remark as saying that the UK economy is somehow in a prison, trapped by debt. This means that all its valuables are “imprisoned” until the debt is paid off. Without resolving the intricacies of what assets the UK government has, it is clear that he means vital physical infrastructure, public buildings, and land, as well as more liquid and illiquid assets in “The Old Lady of Threadneedle Street.”
On one side, yields fall, and the relationship with bond markets is portrayed as “healthy”. Public opinion trusts the government, as expectations for the economy are positive; at least, the news media makes this point. The IPPR stated in 2025, “Falling gilt yields suggest the UK borrowing cost ‘premium’ may be coming to an end,” especially as “10, 20, and 30-year gilt yields have all fallen sharply in recent months.” A Business Matters magazine news article by senior reporter Jamie Young, published 10 December 2025, stated: “Falling gilt yields suggest Rachel Reeves has ‘won back market confidence’.” This suggests a period of exuberance and strong expectations for investment and capital flows under Starmer.
But now Mr Burnham’s premiership has brought the other side of the UK government’s relationship with bond markets back to the table. This relationship, it seems, operates in an inherently volatile environment. When yields rise, this intricate relationship reverts to a toxic environment of distrust and broken expectations. Stakeholder and commentators’ perspectives shift toward the view that bondholders “exploit” the state by profiting from the financialisation of Britain’s public services. The accountant and campaigner Richard Murphy for Funding the Future argued that the media treat the bond market “as if it has a veto over any Labour move to the left”, making them “complicit” in a system where “democracy cannot deliver what people want… so that the wealthy might gain”. For this personage, bondholders are mostly wealthy investors, so, in his view, letting them constrain policy protects their interests at the public’s expense. One thing is clear, though: Britain’s public services are financialised through debt.
Yet this toxic and intricate relationship has another perspective: the government, through the “state”, exploits bond markets to achieve specific goals. Public choice economists would have a say in this. James Buchanan, a Nobel Prize in Economics in 1986, offers this point of view. If markets can fail, governments can too. After all, governments are also structures of layered people acting in coordination toward a goal (re-election). Whilst markets act in coordination toward the goal of profit. Governance achieves its goal through democratic decision-making arrangements. In the UK, democratic arrangements are convoluted and twisted by decisions made by previous administrations. A clear example of this is the inherited Brexit process from David Cameron. Mr Cameron opened the Brexit referendum, lost, and left his mess to subsequent PMs in Whitehall.
This suggests that Westminster’s relationship with bond markets is generally toxic in both perspectives, especially when yields rise. Yet whether bondholders are exploiting the state apparatus of financialisation for profit, or the government is exploiting bond markets for re-election purposes, is a question best addressed by looking at both perspectives more resolutely. Maybe both megastructures of coordination and cooperation do use each other for their specific ends.
But this is not merely what Mr Burnham tries to say, excusing the UK government’s high spending and its debt-to-GDP ratio of almost 96%. Mr Burnham fails to notice who spends the money. To this extent, it makes us believe that Bond markets decide the Treasury’s budget. Until a government realises this is not the case, it will exploit and push British taxpayers into the abyss of having to extract more money from their pockets for the sake of re-election. Worse still, it will make people pay for this debt mess through even more inflation. Until governments, alongside their economists, recognise this, they will fall into the trap of blaming bond markets for high yields and all of Britain’s problems.
A different perspective is this: what if we see yields as just one price in the economy, driven by demand? The demanders are indebted governments looking for re-election. One of them, Whitehall. Political elites have understood a formula: more public spending increases their chances of being re-elected. Yet, at the cost of debt. Adam Smith, in The Wealth of Nations, defined mercantilism as prioritising public revenues over the well-being of the whole population. Are we back to a mercantilist 18th-century Britain? If so, maybe not with the same imperialist status, but as an indebted, less well-off nation.
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