Bank of England Governor Andrew Bailey addressed an audience in Istanbul on Thursday, emphasizing that governments worldwide need to demonstrate credible, stability‑focused fiscal policies as bond markets confront heightened borrowing costs and inflationary pressures.

Credible fiscal stance required

Bailey said, “Whatever the stance of fiscal policy is, it must be credible and directed at stability, and to be seen to be such by markets.” He warned that realistic commitments to rein in public debt would help curb investors’ demands for higher yields on government bonds, especially when unexpected shocks—such as the outbreak of the Iran war—occur.

Market fragility and the need for firm promises

Highlighting the growing brittleness of bond markets, Bailey explained that leveraged positions can unwind quickly, triggering margin calls, model‑driven repricing and forced selling that amplify market moves. “Greater absorption has come with greater fragility,” he noted.

While recent sharp moves in financial markets remain “some way from normal,” Bailey stressed they have not yet reached a point of stress or illiquidity. Nonetheless, he urged central banks to stay focused on their core mission of bringing down inflation.

British bond yields rise amid global sell‑off

British government bond yields hit their highest levels in decades earlier on Thursday, part of a broader global sell‑off spurred by a jump in oil prices. Bailey’s remarks came as investors reassessed risk in an environment of rising energy costs and geopolitical uncertainty.

Implications for policymakers

Bailey’s comments signal a clear message to fiscal authorities: credible, transparent debt‑reduction strategies are essential to maintain market confidence. By pledging realistic pathways to lower public debt, governments can reduce the pressure on bond markets and help keep borrowing costs manageable.

For policymakers, the governor’s warning underscores the importance of aligning fiscal actions with the central bank’s inflation‑targeting mandate. A coordinated approach that balances debt sustainability with price stability will be critical as economies navigate ongoing geopolitical shocks and volatile commodity markets.

Looking ahead

As the Bank of England continues its effort to tame inflation, Bailey’s call for stronger fiscal commitments adds another layer of responsibility for governments. The expectation is that clear, credible plans will reassure investors, lower yield demands, and support broader economic stability.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.