Box B: Why Bond Markets Are Now In Charge

Helen Thomas

National Institute Global Economic Outlook, 2025, issue 19, 44-49

Abstract: Government bond markets used to command little attention, with volatility squeezed out by over a decade of quantitative easing and zero interest rates. The pandemic and its aftermath shattered this complacency. Higher inflation and higher interest rates were not a one–off shock but a return to the old normal, stripping away the naivety that fiscal space was infinite because yields were always low. Today, bond markets have therefore become a central political issue – influencing election promises and party fortunes. In turn, politicians have become the key driver for bond yields rather than central bankers. UK and US government bond yields have risen to multi decade highs, reflecting investor concerns about persistent fiscal deficits and the scale of public debt.

Date: 2025
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