Global Bond Market Sell Off Aug & Sept 2025 ... Is it Time to Buy Bond, Gilt and Fixed Interest Funds?
Published / Last Updated on 04/09/2025
Ever wondered where governments borrow from or where airlines borrow to buy a fleet of aeroplanes?
Government bonds (in the UK known as Gilts) and Corporate Bonds are where investors lend their money to governments or large companies for a fixed rate of return or index linked (inflation) return known as the “yield”. This is the fixed or indexed interest rate that governments and large corporates must pay in interest on their debt. Think of this like an ‘interest only mortgage’ – you pay the interest payments each month or year and then at the end of the term you must pay the debt/capital/loan back in full. This is a Bond/Gilt.
Bond yields (interest rates on debt) are currently high and there has recently been a global bond market sell-off.
Bank Interest Explanation Helps
Now, let’s think about banking and bank deposits. If you walk into a bank and deposit money:
- £100,000 invested at 4% pa interest gives you a yearly interest income of £4,000 pa gross.
If interest rates fall to 2% pa:
- £200,000 needs to be invested at 2% pa to get a yearly interest income of £4,000 pa gross. The capital required has doubled.
If interest rates increase to 6% pa:
- £66,667 needs to be invested at 6% pa to get a yearly interest income of £4,000 pa gross. The capital required has fallen dramatically as you are getting a higher interest rate.
This is the same for government bonds/gilts if you invest directly or if you invest via a Fixed Interest or Index Linked Bond/Gilt fund.
Where there are concerns for a government’s ability to meet its debt or it is borrowing too much e.g., the USA, France (rumours that it may need an IMF bailout in the same way that Ireland and Greece did) or in the UK, there are concerns that the Labour Government is borrowing too much and without raising taxes in the Autumn Budget 2025. This is why there has been a bond/gilt market sell off in late August and early September 2025.
What does all this mean?
When you compare the example bank interest rates above, you should note that the UK 30 year Treasury Gilt yield (the cost to the government for a 30 year ‘interest only’ mortgage) is currently at 5.7% pa and the yield on a UK 10 Year Treasury Gilt is 4.7% pa.
This means that the amount investors need to lend today for a good return has fallen and the capital values global and UK fixed interest funds has fallen and are now relatively cheap.
Look above again at the amount needed to deposit in a bank when interest rates are at 6% pa …
- This may be the right time for you to consider buying into or switching existing pensions, investments, and ISA funds into Global or UK fixed interest funds.
Look above again at the amount needed to deposit in a bank when interest rates are at 2% pa …
- When interest rates fall and government borrowing stabilises, the capital value of existing bond/gilt and fixed interest funds (bought at 5-6%) will grow significantly.
