Every Bond Market In The World Is Breaking

Believe it or not, there's a market so powerful, it can topple a government in weeks, crash a currency overnight, and decide what you pay for the roof over your head. And right now, it's breaking. If you couldn't already tell. I'm talking about the bond market. Long Yields is their name, but this is- The global bond route makes a comeback. And for the last decade, it did something no market in history has ever done. It made money almost free through cheap mortgages and affordable debt. However, now, that same market is turning against America, Britain, and Japan all at the same time. And it's coming for your mortgage savings and taxes. So let me break down exactly what's happening with the bond market, why it secretly runs your entire financial life. And then I'll give you my opinion on what you can do about it as an experienced investor. When you think about the world of money, what's the first thing that pops into your head? I'd bet my last tenor that for most people, it's the stock market. And things like the S&P 500 or some kind of suit shouting on the trading floor, which makes sense because it's the biggest financial market in the world, right? Well, despite what a lot of people think, that's not actually true because the bond market is worth roughly $160 trillion, which is actually bigger than the global stock market. And if you want proof of just how important this market is, look at Donald Trump. When his tariff sent markets into chaos in 2025, stocks were crashing, but it was the bond market he specifically omitted he was watching, saying, the bond market is very tricky, I was watching it. Now, I understand why people care more about the stock market because it's built me a lot of wealth over the years and it's definitely more sexy. But even if you've never bought a bond in your life, it's worth knowing about because this market is what sets the risk-free rate, which is basically the base price of money everywhere in the world. A bond is basically just a loan issued by either a company or more commonly a government. So when a government wants to spend more money than it collects in tax, which trust me, they all do, it doesn't ring a bank and instead it writes an IOU and sells it to investors all over the world. Essentially, you hand the government your money now and they promise to pay you back later with a bit of interest on top. And that interest is what's known as the yield. Now that yield isn't just an innocent bit of profit for investors like you and me because that number indirectly sets the price of your entire life. Your mortgage, rent, car finance, credit card, and the rate on your savings all take that cue from that one number. Think of it like the thermostat of the entire economy. You might never see or touch it, but it's sitting on the wall of every bank in the world. And when it moves, the temperature of your whole financial life moves with it. So really, the bond market is the landlord of your future and you've been paying it rent your whole adult life without even realizing it. But how does it actually work? Well, when trust in a government falls, the yield rises because the government has to pay people more to take on what's seen as a riskier debt. And when that yield rises, everything in your life gets more expensive. So, if this shield controls everything, why did it stay so low for so long? After the big crash of 2008 and then again during the pandemic, to stop the entire financial system from collapsing, central banks cut interest rates down to basically zero. And as if that wasn't enough, became a guaranteed buyer of government bonds and hoovered everything up. The result of this was for the first time in human history, money became almost free. And when I say that, I just mean the cost of borrowing was next to nothing. Now, imagine you're a government, the cost of borrowing is lower than ever and there's a guaranteed buyer ready to purchase any debt you issue. What do you do when you're already overspending recklessly in all areas? Well, I'll tell you what they do because you'd maybe do something more sensible. They borrow, borrow again. Oh, and then borrow some more and usually waste it. Then because there's no pain, immediate bill or angry phone call demanding crazy interest, they just keep going. To be fair, it wasn't just big governments taking advantage of the free money party, it was us too. Cheap mortgages leading to house prices going crazy, cheap car finance so everyone drove a nicer car and businesses borrowing to reinvest and buy back their own shares. A whole generation has now grown up believing that money is cheap and always will be. In the same way that I believe the sum will always come up, it genuinely felt like a golden age unlike anything I've ever seen. Assets went up every year, so if you owned them, you got richer every day without lifting a finger. However, a golden age that runs on borrowed money isn't really a golden age at all. And if I'm being honest, it's more like a giant bar tab being run up in your name. And like all tabs, one day it has to be paid back or at the very least borrowed all over again at whatever the price happens to be on that day. And in 2022, the friend had been lended to everyone basically for free with a big happy smile. Well, yeah, they stopped smiling. So what finally woke the bond market up? Well, a big part of it was inflation. For years, prices sat fairly stable and then all at once, the cost of everything took off and never fully sat back down. This is obviously terrible news for everyday people like you and me, because the cost of everything we need in our daily lives is more. But think about what it does to a lender. If I lend you money, the one thing I'm terrified of is inflation because inflation eats away at my money while you're holding it. Let's say I lend you $100 today and prices jump 10%. By the time you pay me back, that $100 only buys $90 worth of stuff. So essentially, I've lost money just for being kind. And let's be real, lenders and investors aren't really kind. They're trying to make a profit. So what do they do? Well, they demand a higher yield and proper compensation for the risk. That, in a nutshell, is exactly what the bond market started doing. It stopped accepting a few crumbs of interest and began demanding to be paid properly again in the same way lenders always did before the free money party started. And then to make matters worse, at the exact same moment, the big buyers walked out. Remember those central banks that used to buy up all the debt with no questions asked? Well, they flipped. The Fed and the European Central Bank stopped replacing what matured and the Bank of England went one step further. It started selling outright. And foreign governments, the ones that used to happily park their reserves in American, British, and European debt started stepping back, leaving private investors to fill the gap. So what's happening now? Well, on one side, governments are borrowing more than ever, flooding the world with IOUs. And on the other side, there's fewer buyers of their debt and the people who are still buying are more nervous than ever, demanding a much higher price to compensate the risk. There's more debt for sale, less appetite to buy it, so the price of money goes up everywhere at exactly the same time. This isn't some distant warning. We're in the middle of a global bond sell-off and yields are climbing to levels we haven't seen in over a decade. I mean, Germany is at its highest since 2011. American 30-year borrowing costs are back at levels we haven't seen since 2007. And Deutsche Bank has said, the higher yields go, the more uncomfortable the long-term picture looks for many countries around the world. So you probably want to see where all of this is heading, and that's actually easier than you think as you don't need a crystal ball. You just need to look at the countries already breaking and the first crack showed up in the one place no one expected. I want to take you all the way to Japan, and I promise this isn't a detour because what's happening there hits you right where it hurts at home. So let me show you exactly how it works. For 30 years, Japan has been the quiet and sensible country while the rest of us partied with free money. Japan was the wallflower who barely charged any interest and just kept the whole world's cheap money flowing. And because Japanese savers couldn't make enough money investing in their own country's bonds, all that investor money flooded into American debt, European debt, and well, everywhere else really. Essentially, Japan was unintentionally one of the key foundations the whole system was standing on, which wasn't really a problem until you consider Japan is also the most indebted major country on earth and its government owes more than double the size of its entire economy. For decades, that didn't really matter because interest rates were on the floor. But this year, the floor gave way and Japanese borrowing costs pushed through 3% for the first time since 1996. But what does this mean for you? Well, as Japan's own debt gets more expensive, their citizens can earn more money at home by lending to the government. I mean, why chase a return in America when you can finally get paid a decent yield at home with none of the currency conversion risk? So naturally, they sell. In the first three months of this year alone, Japanese investors sold nearly $30 billion of US government debt, which is the biggest quarterly sell-off in four years. And where is all that money going? Well, it's increasingly staying at home. Do you see the problem here? One of America's biggest, most reliable lenders is just walking away. And when a big lender leaves, the borrower has to offer a higher rate to tempt everyone else to fill the gap. And a higher rate on American debt feeds straight into the American mortgage rate, which, because the whole world takes its cue from America, feeds into yours too, pretty much wherever you are. I think that's the part the headlines are really missing. Yield dries in Japan, and 6,000 miles away, your mortgage costs more. But if I'm being completely honest, Japan is a slow-sinking giant. And if you wanna see how fast things can really fall, you need to look to the land of Sherlock Holmes, Harry Potter, and Krumpus, to a country the bond market executed in 49 days. You don't have to take my word for any of what we're discussing, because Britain actually ran this experiment live on TV. And I sat here and watched every second of it. It was the autumn of 2022, and the brand new British prime minister, Liz Truss, had her chancellor stand up and announce a budget the market didn't trust, pardon the pun. 45 billion pounds of tax cuts with no real plan for how to pay for them, and crucially, no independent watchdog to check the figures. The bond market took one look at it and decided it didn't believe a word. What happened next was one of the fastest financial punishments in modern history. And it's the best example I can really give you to show you that the bond market is who's in charge. Yields on British government debt absolutely exploded. The pound crashed to its lowest level, and it nearly took the pension system down with it, all because British pension funds had borrowed against their government bonds. So when prices fell, they were forced to sell more of them, which, you guessed it, pushed prices down even further. It was so bad that the Bank of England had to come rushing in with an emergency rescue, promising to buy up 65 billion pounds of debt just to stop the whole thing from collapsing. And Liz Truss, yeah, she was gone in 49 days, the shortest serving prime minister ever. The Daily Star newspaper actually set up a live stream of a lettuce to see whether a supermarket lettuce would outlast her time in office. And funny enough, the lettuce actually won. Now, you can laugh at that, and trust me, we all did. But don't miss what actually happened, because it was far from a joke. An unelected market looked at an unelected government, decided it didn't trust the numbers, and removed it inside of seven weeks. The bond market essentially fired the prime minister. That's shocking. But what's even worse is the British government borrowing costs are now higher than they were during that Liz Truss crisis, reaching its highest level since 1998. To put that into perspective, the last time it cost Britain this much to borrow, Tony Blair had barely been prime minister for a year. I was still ginger, and I just had my son, who now looks like this. However, in 2022, there was a clear villain to blame, Liz Truss and her reckless budget. Whereas this time, it's a slow grinding pressure getting tighter every month on governments carrying too much debt. So what happens when this exact force reaches the biggest borrower in history? Well, let's talk about America, because everything we discussed so far is the warmup. This is the main event. The United States government now owes more than $40 trillion and it's climbing as we speak. That number is so big that, if I'm being honest, it almost doesn't mean anything. So let me put it into perspective. America is now spending more just on the interest for its debt than it spends on its entire military. Let that sink in for a minute. The most powerful armed forces the world has ever seen, all the aircraft carriers, jets, bases, troops, and the interest bill is still bigger, around $1.2 trillion a year, roughly $100 billion every single month, just to keep up with their payments on debt they already have. There's an historian named Noel Ferguson who has a rule for this. He says any great power that ends up spending more on servicing its debt than on defending itself risks ceasing to be a great power because every dollar that gets swallowed up by interest is a dollar that can't be spent on anything that actually makes the country stronger. America crossed that line and it's not planning to cross back anytime soon. On its own, this debt is already a major crisis, well, at least in mine and Noel's opinion. But when you layer the current bond crisis on top of it, things get pretty scary. Higher yields mean a bigger interest bill. A bigger interest bill means the government has to borrow even more just to cover it. More borrowing floods the market with even more debt, which then pushes yields higher, making the bill bigger again. I've seen this behavior many times before, but just on a smaller scale with actual people. A government doing this is no different. They're essentially trapped and a trapped government really doesn't have any good moves left. When I was in number 10 Downing Street earlier this year, they pretty much admitted this. Governments could get their central banks to cut rates to ease the pain, but cutting rates now with inflation still rising and an oil shock coming out of the Middle East, you're pouring petrol on the fire. They could hold rates high to fight inflation, but if they hold them here, they're slowly strangling the economy, which could lead to a recession, or they could just print the money to pay for it all. But printing on a scale like this further destroys the value of your own currency. So that's not really an option either. What I'm trying to say is a cornered government only really has bad options and whatever option they decide to go with lands in the same place, your wallet. So far, we've been discussing bonds, governments, yields and trillions of dollars. So trust me when I say that I understand it can all feel a bit distant, but this isn't some distant market that only matters to governments on Wall Street. It's already affecting you directly in five different ways. So let me show you what they are and then what you can actually do about them. First is the roof over your head. Bond yields set mortgage rates. So when the bond market essentially raises rent on the government, your mortgage renewal is where you feel it. And even if you rent, you'll feel it too because your landlord's costs go up and then they pass that cost on to you. Second is your taxes. When the interest bill on the national debt runs into the trillions, that money naturally has to come from somewhere. And there's only really one place it ever comes from, you, through higher taxes or frozen thresholds that drag more of your pay into higher tax bands every year without anyone having to announce a tax rise. Third is your public services because the interest on the debt gets paid first. It eats the budget from the top down. So you basically end up paying more tax and getting less back. Fourth, your savings. If you've been sensible and kept some money in the bank, inflation has been picking your pocket the entire time. It feels safe for sure because the number on the screen never changes, but the amount that money can actually buy shrinks every day. And finally, your job. When borrowing costs choke businesses, hiring freezes, expansion stops, and the weakest companies go bust, which is a real risk to people's wages and livelihoods. And it always lands the hardest on working people who did the least to cause it. That's the hidden tax. And I know how crazy all that sounds, but of course this is the worst case scenario and none of it's guaranteed. In fact, it's far from it. But let's say even some of that stuff happens or you just wanna be prepared and start building wealth. What can you do? Now, I'm not a financial advisor and none of this is financial advice. I've just been investing for 40 years and I wanna show you how I'm personally responding to everything we've just discussed. What you decide to do with your own money is entirely up to you. Look, I've shown you the cracks in the system and why it's a good idea to not have all your money tied up in one country or government with the goal of spreading your risk and growing wealth over time. The strategy I'm personally using is called a free fund portfolio, which was first introduced by a group known as the Bogleheads. It sounds complicated, but it's actually really simple. The idea is to invest in a domestic fund to capture potential returns from your home economy, an international fund to diversify yourself across other countries, and a bond market fund to add some stability. Now, once you have this strategy in place, the question becomes, how much money do you allocate to each fund? And honestly, it completely depends on your age and risk tolerance. If you're on the younger side, prepared to take more risk and want to grow your wealth over time, you might go for a 70% domestic, 20% international, and 10% bond split. Whereas if you're old like me and are more interested in preserving what you have instead of chasing returns, you might go for 45% domestic, 15% international, and 40% bonds. I'm personally not on the old man investing style yet, and I do lean more towards a younger person strategy, but I've been doing this for a long time and feel pretty comfortable when taking risks. But hey, maybe one day that will change. Let me show you how I do it. I'll just grab my phone. So let's start with domestic, which is investing into your home economy. But if I'm being honest, it doesn't have to actually be where you live. A lot of people actually choose America for this because it has some of the biggest companies in the world. So if I search S&P 500 here, there we go, ticker SPY5, this is one of the most popular index funds in the world because it's 500 of the biggest companies in America like Apple, Microsoft, Nvidia, Amazon, and so on, all in one single investment. I like this because I'm not banking on one company getting it right, and instead owning a tiny piece of the largest companies in the American economy, which over the last 40 years has been one of the most reliable ways to build wealth. Now, before you start commenting that this is heavily weighted towards the top 10 or so companies in the index, I am already aware of this, and yes, it is concerning to a certain extent. However, unlike during the dot-com bubble, at least these 10 companies are profitable. But I'm not gonna bang on about this anymore, as I'm sure you guys are very familiar with the S&P 500, as if you've made it to this point in the video, then you're clearly a financially switched-on person. Okay, now for international. For this, you have two options, really. Let me just search iShares World, yeah, this one here, ticker SWDA. So this is an international fund of over 1,500 stocks in 23 different countries like the US, Japan, Europe, Australia, and so on, which is great for diversification. But these markets are already quite established, and we'll have quite a lot of overlap with the S&P 500 that I just mentioned. If you want something a bit more emerging, or in other words, up and coming, you could go for something like this. Let me search iShares EM. Yeah, that's the one, ticker EIMI. Now, this fund invests directly into companies from countries like China, Korea, Taiwan, India, and so on, which is pretty cool because it exposes you to companies like Samsung, Tencent, and TSMC, which, of course, you can't get with US-focused funds. And as for bonds, now, I'm not sitting here buying individual bonds one at a time, and instead, I'm gonna search for a bond ETF like this one, for example, ticker IB01, which lets me buy US government bonds all bundled into one simple investment. This is the steady bit of your portfolio. Bonds don't shoot up like stocks, but they can help smooth the ride because stocks and bonds often move in opposite directions, which can balance things out. But of course, it's not risk-free, and both can fall together. By the way, if you were wondering, the investing app I've been using is called eToro. It's one of the biggest investing apps in the world with over 40 million users. You can trade thousands of stocks, ETFs, and crypto all from one account with 0% commission on stocks. As I was planning to talk about them anyway, I reached out to see if they'd sponsor this portion of the video, and they agreed, and they're offering you a free 50-pound share in any one of these nine companies when you use my link in the description and make a 100-pound deposit. Honestly, one of the things I like most is being able to see what other investors on the platform are actually holding through CopyTrader. It literally follows investors like me and copies the trades they make in real time. But here's the thing I really want you to walk away with, and it's got nothing to do with any specific investing platform. You can't fix the national debt. You can't stop the bond market doing what the bond market does, but you absolutely can take control of your own future by spending less than you make, increasing your income, and investing in assets to build wealth while everyone else gets handed a bill and never understands why. If you want to understand what always happens before a market crashed, then I'm gonna leave that video right up there, but don't click on it just yet. Make sure to subscribe if you wanna stay ahead of everyone else, okay? I'll see you over there.