In short, if the government plans to spend a lot, and people worry about prices going up, bond yields rise. This can make borrowing more expensive for everyone
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Government Budget: When the government makes a plan for how to spend money (the budget), it can include a lot of spending on things like roads, schools, or healthcare Or Tax cuts or Big Beautiful Bill
Rising Bond Yields: If people think this spending will cause prices to go up (inflation), they want more money back for lending to the government. So, they ask for higher interest on bonds, which is called a higher yield.
Why It Matters:
More Expensive Loans: If bond yields go up, banks might charge more for loans (like for houses or cars), making it costlier to borrow money.
Investing Choices: People might choose to invest in bonds instead of stocks if they think bonds are safer or offer better returns.
US Government Bonds are referred to as “risk free debt” because it is seen as the safest investment in existence. The US has never missed a payment in the whole history of the country.
Because of that all interest rates are related to the bond rate. People are getting nervous that US bonds are no longer trust worthy so they are demanding higher interest rates. This is terrible for the economy because those are the floor of interest rates. Meaning the cost to borrow is going up along with the cost of every thing else.
They’re only the floor because they’re seen as risk free. “Why lend someone money for less than what the US government is offering you? The government is always gonna pay you back, after all”. If that mentality changes then treasury bonds will no longer be the floor, because you’d rather lend the money to someone else than the US government.
Not that this isn’t disastrous for the US. Increased taxes, cuts to medicare/medicaid/military, a government default, or a mix of all three are an inevitability. The US government can probably keep paying interest payment costs with more debt for a while, but not forever. These movements in the bond market takes us closer to the end of the USA’s debt spree.
Please explain the significance of this to someone who’s never bought a bond but has dug through a couch to find spare change for groceries.
In short, if the government plans to spend a lot, and people worry about prices going up, bond yields rise. This can make borrowing more expensive for everyone
Tap for longer
Government Budget: When the government makes a plan for how to spend money (the budget), it can include a lot of spending on things like roads, schools, or healthcare Or Tax cuts or Big Beautiful Bill
Rising Bond Yields: If people think this spending will cause prices to go up (inflation), they want more money back for lending to the government. So, they ask for higher interest on bonds, which is called a higher yield.
Why It Matters:
So I’m gonna go from a 27% interest rate on my emergency credit card that is always at its limit to, what, like a 35% interest rate?
US Government Bonds are referred to as “risk free debt” because it is seen as the safest investment in existence. The US has never missed a payment in the whole history of the country.
Because of that all interest rates are related to the bond rate. People are getting nervous that US bonds are no longer trust worthy so they are demanding higher interest rates. This is terrible for the economy because those are the floor of interest rates. Meaning the cost to borrow is going up along with the cost of every thing else.
They’re only the floor because they’re seen as risk free. “Why lend someone money for less than what the US government is offering you? The government is always gonna pay you back, after all”. If that mentality changes then treasury bonds will no longer be the floor, because you’d rather lend the money to someone else than the US government.
Not that this isn’t disastrous for the US. Increased taxes, cuts to medicare/medicaid/military, a government default, or a mix of all three are an inevitability. The US government can probably keep paying interest payment costs with more debt for a while, but not forever. These movements in the bond market takes us closer to the end of the USA’s debt spree.
Donald Trump is dismantling the US and I can’t even enjoy it because he’s an asshole.
Boring, dumb, ugly timeline…