Humans are wired for pattern recognition because long before modern life existed it helped us survive. Our brains are constantly asking: What does this remind me of? Have I seen this before? What usually happens next? There is a term for this – Apophenia. The tendency to perceive meaningful connections between unrelated things. Humans have evolved to prefer a false positive (“there might be danger”) over a false negative (“ignore danger and die”). So, we are naturally biased toward detecting patterns, even when much of what we are seeing is simply noise.

For investors, apophenia tends to emerge most strongly during periods of stress. A falling share price suddenly resembles 1929. A market rally resembles the final stages of the dot-com bubble. We desperately want to believe we have seen the movie before because familiarity creates the illusion of predictability – however, markets rhyme rather than replay. So, we are wary of these historical comparisons, but even we are finding it difficult to ignore some similarities with the 1970s. And we mean similarities extending well beyond the return of mullets and moustaches.

The backdrop feels familiar for those old enough to remember it. Oil shocks. Stubborn inflation. Poor productivity. A weak government, under pressure to spend more while simultaneously insisting the bill will somehow never arrive. The suggestion from a number of politicians that governments should not be ‘held in hock’ to bond markets reveals the mindset becoming increasingly fashionable. Namely that elected politicians, not investors, should decide how much a country can borrow and spend.  That may sound reasonable in theory. But in practice when you owe someone money, they normally have a say. Government bond markets matter enormously.

Government bonds are simply IOUs. Governments borrow money from investors and promise to repay them with interest. The bond market therefore acts as a giant confidence test on whether investors believe a government’s economic plans are credible. On whether inflation will eat up the real value of their savings before the government pays them back. If confidence falls, investors demand higher interest rates to lend money. Those higher rates feed through into mortgages, business borrowing and the wider economy. Bond markets sound like someone else’s problem but they quietly determine the price of money for almost everyone.

The parallels with the 1970s are becoming difficult to dismiss. Amidst the crises there were spiralling wage demands and repeated confrontations between governments, unions and markets. One union leader famously described the government’s approach to pay negotiations as being like a Las Vegas “fruit machine”. Keep pulling the lever and eventually another payout appears.

That is what markets are worrying about. Not simply that governments spend too much. But that policy again risks drifting towards the economics of the fruit machine. Larger spending promises in the hope that markets will absorb the cost indefinitely.

Last time the story ended with a Sterling crisis and an IMF bailout. That feels some way off. But beneath the surface there is growing unease. Politicians promising, unions demanding and bond markets eventually asking who is paying for it all. While MVAM remains wary of falling too deeply for the pattern, portfolio managers have been issued with emergency supplies of flared trousers, brown corduroy jackets and mandatory reruns of Monty Python. After all nobody expects a bond market inquisition.