Trump’s Liz Truss Moment Helps UK Remember Bond Market Is Boss

The bond market has once again become the ultimate arbiter of political power—and in 2025, it’s teaching both the U.S. and the UK a brutal lesson. Just as Liz Truss’s brief tenure in 2022 ended in a fiscal meltdown after markets revolted against her policies, Donald Trump’s protectionist trade agenda has now triggered a similar crisis in the UK. The result? A stark reminder that bond markets don’t just react to leaders—they force them to kneel.

The Trump Tariff Tsunami and Its UK Aftermath

Trump’s 2025 escalation of trade wars—slapping 125% tariffs on Chinese imports and triggering global retaliations—sent shockwaves through global bond markets. Investors, spooked by inflation fears and supply chain disruptions, began demanding higher returns on government debt. The UK felt this acutely: by January 2025, 10-year gilt yields surged to 4.9%, nearing the 4.99% peak of the Truss crisis. The pound tumbled to $1.03, a 14-month low, as foreign investors fled UK assets fearing fiscal instability.

The chart reveals a synchronized spike in yields across both markets, underscoring how Trump’s policies amplified global borrowing costs. The UK’s reliance on international capital made it especially vulnerable.

A Fiscal Tightrope Walk for Labour

The UK’s Labour government, under Chancellor Rachel Reeves, found itself in a Truss-like bind. In October 2024, Reeves unveiled a budget boosting public spending without new taxes—a move markets interpreted as inflationary. The Office for Budget Responsibility (OBR) warned that rising yields and weaker growth could erase £9.9bn in fiscal headroom by March 2025. The Bank of England’s quantitative tightening program (QT), which sold long-dated gilts, only worsened volatility. By April 2025, the BoE had postponed QT auctions for ultra-long-dated bonds, fearing a replay of 2022’s chaos.

The Truss Parallel: Markets Don’t Forget

The similarities to 2022 are uncanny. Truss’s “mini-budget” caused gilt yields to spike, forcing the BoE to inject £65bn to stabilize markets. In 2025, the BoE faced comparable pressure, though with less urgency. Yet the lesson is clear: bond markets punish fiscal recklessness. Investors now demand credible plans for debt sustainability, not political promises. As inflation fell to 2.5% in January 2025, the OBR’s March forecast became a critical test of Labour’s ability to balance growth and austerity.

Trump’s Retreat and the Bond Market’s Power

The bond market’s influence even reached across the Atlantic. Trump’s 90-day tariff pause—a “Trump put” for markets—was directly tied to Treasury yield spikes. The 10-year yield’s 4.5% peak in April 2024 forced the administration to backtrack, proving markets can bend even the most defiant leaders. Treasury Secretary Scott Bessent admitted investors were “getting a little queasy,” a stark contrast to Trump’s earlier bluster. Meanwhile, the dollar’s 1.8% drop on the DXY index highlighted eroding confidence in U.S. economic leadership.

The data shows the pound weakening as inflation fears and trade tensions intensified, linking currency instability to broader fiscal concerns.

Conclusion: The Bond Market’s Eternal Reign

The UK’s 2025 bond crisis isn’t just a repeat of 2022—it’s a global lesson in market supremacy. Trump’s trade wars and the UK’s fiscal tightrope underscore a simple truth: governments ignore bond markets at their peril. With gilt yields still elevated, the pound near historic lows, and Trump’s approval rating at -7%, the message is clear. Markets demand fiscal discipline, stable trade policies, and credible leadership—or they’ll punish economies with higher borrowing costs, weaker currencies, and political fallout.

Investors, take note: in the era of “bond vigilantes,” policy decisions are measured not by political will but by yield spreads. As the UK and U.S. navigate this reality, the bond market’s verdict remains the ultimate authority.