Jasmine Birtles
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Are Government Bonds Really a Bargain? Or Is Someone Pulling Our Leg?
Ruby Layram
19th Aug 2025
– A guest article by Alistair Macleod (follow his Substack!)
The UK, along with the rest of the G7 (a club of seven of the world’s biggest, most advanced economies), is in a bit of a pickle.
On paper, GDP numbers might look alright, but if you strip out the bit propped up by government spending, the private sector (businesses and organisations owned by individuals, not the government) is actually shrinking.
That means while the government is splashing the cash (and racking up debt), the actual economy that pays the taxes to cover it is getting smaller.
Not ideal.
Now, here’s where it gets interesting. Some big names in the investing world such as BlackRock, Fidelity, and Schroders, are saying British government bonds (gilts) are a “screaming buy.” That’s quite a statement, especially when the gilt market itself doesn’t seem convinced.
Could this just be smart investing insight? Or is it a PR push to help the government attract buyers for its growing pile of debt? Conspiracy theory? Maybe. But let’s stick to what we do know.
The Bigger Picture (and Why the US Matters)
To understand what’s happening, it’s worth glancing over at the US. Their government ran a budget deficit of 6.4% of GDP last year… but their economy (nominal GDP) only grew by 5%.
In other words, the private sector is shrinking there too.
This year isn’t looking much better. GDP is only rising because of government spending, while real, inflation-adjusted growth is actually negative. Bank lending to non-financial businesses is falling, savings rates are scraping along the bottom, and debt write-offs are creeping up.
Trouble on the Horizon
Looking ahead, there’s even more uncertainty. US tariff policies (remember the disaster of the 1930s Smoot-Hawley tariffs?) could put a dent in global trade.
Private sector credit is already tight, and if global growth slows further, tax revenues will take a hit. That means governments will need to borrow even more, pushing debt-to-GDP ratios higher and higher.
When that happens, bond yields tend to rise… and when yields rise, bond prices fall.
Not exactly a recipe for “screaming buy” returns unless you time it perfectly.
Why This Matters for You
A lot of economists will tell you that in a recession, inflation falls and interest rates follow. But that’s not necessarily true when governments are stuck in a debt trap, borrowing more while their tax base shrinks. In that situation, investors start worrying about the currency itself losing value.
That’s why some central banks, especially in Asia, have been quietly swapping out of dollars and pounds into gold.
The Bottom Line
So, should you buy government bonds right now?
Honestly, it depends on your view of the long-term risks. If you think inflation will keep easing and rates will fall, bonds could do well. If you think currencies will weaken and governments will keep borrowing heavily, it might be wise to tread carefully. Or at least keep your exposure balanced with other assets like equities or gold.
As for those big investment houses telling us gilts are a bargain… well, let’s just say they might know something we don’t, or they might have their own reasons for talking them up.
Either way, always do your own homework before following the herd.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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