UK bond market cools, GBP more stable

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waterman
Written by Dan Waterman
July 22nd 2025
UK Public Sector Net Borrowing outruns by £3bn in June, BUT, it is in line with OBR forecast..

Some brief good news today for the UK and Chancellor Reeves as borrowing for June met the Office for Budget Responsibilities monthly profile. We would definitely have seen £ drop today if it didn't.

Public borrowing is up £6bn on this time last year and at £20.7bn, it's at the second highest since records began. Interest payments from the government followed a similar story; £16bn is £8bn more than a year ago and the second highest on record.

Nothing fundamentally changes to the UK's poor debt dynamic, but it is some respite on the matter for now (simply because the data hasn't superseded expectations). UK bonds have dropped slightly from last week and yesterday's bond auction was once again well-subscribed.

As mentioned in a few reports recently, the bond market is the main market driver right now and it's flashing red.

Bond yields need to fall for GBP to recover and investors need to remain faithful to the UK/government and keep buying up bonds when they do drop to keep GBP from getting weaker.

I'm hopeful the summer brings calmer waters for the Pound (explained in my Q3 forecast - reach out to me if you would like to see it), but the start of Q3 was completely unexpected, so the highs I expected to see may sadly not come to fruition now.

A final and quick note for now on Japan.

Japan is at the epicenter of a potential sovereign debt crisis. The country's bond yields have risen to the highest on record, investors have lost confidence in the Bank of Japan (BOJ) which has seen the currency collapse (30-year low v USD).

Japan's debt-to-GDP ratio is at a terrifying 260% and growing. This matters to you because; Japan is the largest foreign holder of US bonds. Japanese investors will shift their focus to markets back home which will see US bond yields rise, increasing overall market volatility and creating massive uncertainty. 

The Pound as you know is not a safe-haven currency and does not do well in unstable environments. Something to be aware of in the coming weeks and months as this situation progresses.