For the past fortnight, sections of the British press have staged a familiar drama. The script runs as follows: a government in disarray, aides departing, leadership under strain, and, inevitably, a verdict from the “Bond Market”. Gilt yields “surged”, readers were told, then “reversed”. The Telegraph suggested Starmer might sacrifice his Chancellor to avert a “bond crisis”. CNBC identified a “Damocles sword over Britain’s bond market”. Reuters, The Guardian, Bloomberg, MorningStar, and the Financial Times traced a direct line from Westminster speculation to national peril, warning that markets were losing faith in British governance.
This performance is not new. The beneficiaries are well known.
The staging is meticulous. Attention is drawn to the 10-year gilt and the 30-year—the longer maturities where uncertainty weighs heaviest and duration risk is most acute. The upward movement is highlighted, spikes are pointed out, and alarm invited. This is the “Truss Trauma” reflex: a conditioned response that seeks to constrain every British politician. Deviate from fiscal rectitude, suggest any significant change and the “bond vigilantes” will punish. The narrative is presented as ironclad. The conclusion is predetermined. But the evidence is selective.
Highlighted evidence is curated evidence. The yield curve is not merely a point captured during peak anxiety. It is a term structure of expectations, a full profile that must be viewed in its entirety.
And, presently, it looks like this:
As you can see, the yield on the short end has fallen over the last year, as we would expect given that the rate is determined relative to the Bank Rate. For example, this is the progress of the 2-year gilt over the last year:
The real constraint lies elsewhere. If market participants want short, and we’re still going to issue gilts, then give them short. It’s not as though they have any aggregate alternative. The Debt Management Office’s issuance remit remains far too broad, allowing sales across the curve without regard to relative cost. If the DMO were directed to prioritise the lowest-yielding gilts each week and to avoid offerings exceeding Bank Rate where feasible, the scope for perceived “bond crises” would narrow significantly.
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