In British politics, the bond market has acquired near-mythic status. As the implacable judge of fiscal virtue, quick to punish any government that borrows freely, spends boldly, or cuts taxes deeply, it waves an invisible hand that leaves fingerprints on every budget. Yet few politicians question whose fingers actually move the lever.

Andy Burnham, mayor of Greater Manchester, recently captured this paralysis. Britain, he warned the Institute for Fiscal Studies, remains “in hock to the bond markets” and caught in a “low growth doom loop.” This fear defines the limits on ambitious policy. Nigel Farage shares the diagnosis. “Even if Andy Burnham thinks you can ignore the bond markets,” the Reform UK leader shrugged, “in reality you can’t.”

A rare consensus across the political spectrum. There is only one problem: the spectrum is wrong.

The fear is real enough. When rumours of Burnham returning to Westminster surfaced, benchmark gilt yields twitched, and UK journalists responded with ritual panic, preening and parroting the party line. Such events reinforce the belief that the bond market scrutinises government with hawkish attention, and that signs of loose fiscal policy bring immediate, material costs.

The foundation of this modern superstition is, of course, the 2022 “Mini-Budget.” In the popular imagination, the bond market acted as a righteous immune system, ejecting Liz Truss for her fiscal sins. This narrative has become the “Truss Trauma”, a haunting reminder used to discipline any politician who dares to stray from the prescribed path.

But the panic wasn’t a verdict on borrowing levels; it was a mechanical collision between a sudden change in inflation expectations and a fragile pension fund system that was over-leveraged on long-dated gilts. The “vigilantes” didn’t ride into town to save the taxpayer; they scrambled to sell because the Bank of England’s dual role as rate-setter and bond-buyer had become momentarily incoherent. By misdiagnosing a plumbing failure as a moral crusade, the political class has handed “The Market" a veto it never actually earned.

This misdiagnosis has entrenched a deference that shapes every British political discussion. Politicians from all parties now prostrate themselves before “The Market.” The result is cautious politics, constrained by the belief that gilt traders have the final word. To maintain this liturgy of appeasement, politicians propose increasingly complex schemes. These schemes rely on two delusions: treating optimistic growth forecasts as fiscal magic, or outsourcing democracy to unelected committees that purport to read market tea leaves.

The Office for Budget Responsibility sits at the centre of this theatre. Its forecasts determine compliance with ever more surreal fiscal rules, while policymakers hope its pronouncements will sway gilt yields through perceived credibility. More frequent reviews, added oversight, and further proposed bodies pile up: all aimed at signalling virtue to avoid the feared market disapproval.

Yet these mechanisms cannot succeed. The bond market narrative exists for one purpose: to block political change.

Any material change. From any party. In any way.

This becomes clear once you understand the mechanism behind the myth. Sterling investors have only one aggregate alternative. They can hold fixed-rate gilts or keep money in floating-rate settlement balances at the Bank of England, which pays interest at the Bank Rate. Gilt prices are set relative to this alternative and to the Bank’s policy for changing that rate. The “bond market” is not a separate beast; it is a shadow cast by the Bank’s own decisions.

Retaining the illusion requires three framing tricks.

First, the long-bond blindspot. Any proposed government policy raises uncertainty about the future path of the Bank Rate. Investors respond by selling longer-dated bonds, which carry greater rate risk, and buying shorter-dated ones. Media reports focus obsessively on rising yields for 10- and 30-year gilts while ignoring the corresponding decline in short-dated yields. The panic is selective.

Second, the maturity assumption. Critics cite “rollover risk”: the fear that short-term debt becomes expensive to refinance. But this treats a currency issuer like a household. Under a free-floating currency, the Bank of England, not the bond market, sets the short-term interest rate. HM Treasury can roll over instruments indefinitely, paying roughly the Bank Rate. The US Treasury has funded new borrowing since early 2025 by issuing more short-term bills without cost penalties. The long-term constraint is a choice, not a necessity.

Third, the rate-setting trap. Analysts assume the Bank of England must retain the power to change rates at will. Eliminate this discretion, and the Bank Rate’s path becomes certain. Suddenly, there is no rate risk, no need for fixed-rate instruments, and no “bond market” to placate.

These framing tricks make bond market punishment appear inevitable. In reality, the government can adjust policy or its debt mix and avert any cost impact. The bond market is mendicant, not master; it merely reflects choices within the UK’s monetary framework. Keeping variable rates, favouring long-term debt, and tolerating selective reporting feed the myth.

Politicians and commentators invoke the bond market as an outside enforcer of fiscal virtue. Dispel the framing tricks, adjust the tools, and the supposed monster loses its power.

The bond market does not rule British politics. British politics chooses to be ruled by a distorted view. It is time to unchoose it.

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