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Roula Khalaf, Editor of the FT, selects her favorite stories in this weekly newsletter.

Bond vigilantes smell blood. Revived by a shake-up in the UK government bond market, the undead sheriffs of global finance are opening their coffins to warn that a crisis is coming, urgent action is needed and it will soon begin the multiple debt count. Bonds are on the brink of a big drop in price and heads should roll.

Loud voices are telling us that UK chancellor Rachel Reeves should resign, that she should cancel her trip to China, that the Bank of England should do something to deal with this sudden collapse. -steam of investors’ confidence. This is all nonsense. Bond market discipline is real. Just ask Liz Truss. The big risk is that at some point, investors will balk at the large number of bonds that they are asked to digest. They will refuse to continue buying or demand punitive rates, tying governments to decades of painful debt servicing costs.

It hinges on the idea that world government borrowing is out of hand. There is a grain of truth in this. The IMF calculated last year with global debt levels standing at around $100tn – a huge figure by any measure. “Countries must deal with debt risks now,” it said. To put it bluntly, this means cutting back on spending power or relying on inflation to reduce debt. Option one is not without its cost. Option two is what keeps bond investors up at night.

Of course it’s not just UK bond prices that are under pressure. More alarmingly, perhaps, US yields have also pushed relentlessly higher in recent months even as the Federal Reserve has lowered interest rates. This is very strange. Long-term bond yields generally fall when interest rates fall, as Apollo chief economist Torsten Slok pointed out this month.

At this time, the US 10-year yield has risen by almost one percentage point since the Fed started cutting. “It’s amazing,” he wrote. “Is it fiscal concerns? Is there less demand from abroad? Or maybe the Fed’s cuts are unreasonable? The market is telling us something, and it’s very important for investors to have a view -see why high rates go up when the Fed cuts.

Investors can paint a variety of reasons for this, and one of them is financial concerns. Perhaps this is the beginning of the big push from money managers and the big battle between governments and markets has begun. The truth, however, is likely to be much easier.

Iain Stealey, international chief investment officer for fixed income at JPMorgan Asset Management, is one of those who are not convinced that this situation is as abnormal as it is. The rise in US yield increases since rate cuts began in September was a “big step, no question”, he said. But he also pointed out that yields fell far ahead of the Fed’s pivot.

That’s a problem in itself – the usually strong government bond market is prone to overreaction later, which can lead to bad snapbacks. But again, the facts have changed, as the Fed acknowledged in December. The economy is still in good shape and Donald Trump’s economic policies smell inflationary. Investors are busy writing the rate cuts they wrote for 2025 and the market is moving accordingly.

For the UK, supposedly the main victim of the bond vigilante ire, it remains very difficult to argue that anything meaningful has changed. “Can we really blame Rachel Reeves?” ASK hedge fund group Man this week. “The current episode is not that specific to the UK – gilt and Treasury yields are moving largely in sync. . . . Our lesson here is to be aware of what the media is saying.” (I’ll take the liberty of excluding myself from that burn.)

Added to the mix, the new year rush of bonds hitting the market was incredible. Investors said it was somewhat exaggerated last week when borrowers were eager to avoid a one-day shutdown of the US market to mark the death of former President Jimmy Carter. The butterfly effect in action.

All of this leaves bond bashers pushing an open door, especially in the UK. Andrew Chorlton of M&G Investments, chief investment officer for fixed income, said at an event that hedge funds “looking to make a quick buck” appeared to have a large paper to see how low they can push the gilts. Central banks have also pulled back from their support of bond markets. Quantitative easing accompanied by super-low interest rates is over. With the safety net gone, what you see is a more “real” price for government bonds.

It’s easy for bond enthusiasts, or politicians, these days. But bond market swings are not born equal. I may have been proven wrong, but it felt like a change, not a rebellion.

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