The Story Do bond markets rule the world?
Oct 17, 2025
Mehreen Khan, Economics Editor at The Times, dives deep into the powerful world of bond markets, revealing how they shape government actions amid political turmoil. She explores who invests in government bonds today, from banks to hedge funds, and discusses the volatility that emerged post-2021 due to inflation and central bank rate hikes. Mehreen also analyzes the implications for UK fiscal policy, the precarious state of Japan's bond market, and the intriguing dynamics between populism and bond traders, suggesting a potential collision course.
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How Bonds Work
- A government bond is an IOU that pays a fixed coupon and can be traded, so its price and yield move with demand.
- When bonds are in demand prices rise and yields fall, letting governments borrow more cheaply.
Who Holds And Trades Bonds Now
- Major holders include banks, insurers and pension funds, but fast-money hedge funds have grown in influence.
- The rise of quick-trading players has increased volatility in previously boring bond markets.
Why Bonds Became Risky
- Rapid post-pandemic inflation forced central banks to raise rates from near-zero, which crushed many bond holders.
- That regime shift turned bonds from stable assets into risky ones and caused big losses and bank stress.