NEW YORK (AP) — Nearly everyone will feel the impact of what's going on in the bond market, no matter how far away and abstract it may seem.
Bond yields have jumped to their highest levels in roughly two decades, and that affects anyone who borrows money. That includes discouraged people trying to keep up with high inflation, as well as businesses wanting to build data centers for artificial-intelligence
technology.High yields even affect people who
don't borrow money. For savers, it means they can earn more in interest by putting cash into bonds or a high-yield savings account. It could also knock down the value of the stocks in their 401(k) accounts
And for all U.S. taxpayers, higher yields could lead to higher interest payments for their federal government, which must continually borrow cash to cover the massive gap between how much it spends and brings in through revenue. That would leave less money for everything else.
Here's a look at what's going on and what it means:
When governments and big companies need money, they don’t ask a bank for a loan. Instead, they sell IOUs to investors and promise to repay the money with a certain interest rate. IOUs that get paid back years down the line are called bonds.
Investors buy and sell these IOUs in the bond market after they’re issued. And if bonds begin to look less attractive, such as when worries rise about inflation, a buyer can get one that was earlier worth $100 for less than that.
Even after a bond's price drops, it continues to pay the same interest rate. That means the new buyer will get a bigger return on their money, percentagewise, than the interest rate the bond pays on its face value. Those payments are called the bond’s yield.
In other words, when a bond's price drops, its yield rises. And vice versa.
The centerpiece of the bond market is the U.S. Treasury, which is the IOU the U.S. government sells to borrow money. And yields on U.S. Treasurys are the baseline off which the interest rate for most other kinds of borrowing is based.
For someone looking to buy a home, for example, the interest rate on their 30-year fixed mortgage will likely be what the 10-year Treasury is yielding, plus a little or a lot more depending on how good or bad their credit score is.
There are different parts of the U.S. Treasury market, ranging from short-term bills maturing in a few days to bonds that will get repaid in three decades. Each part affects different kinds of loans, whether it's how much a saver can make on a 12-month certificate of deposit or how much interest a company will pay to borrow money to expand its factories.
The different parts of the bond market don't always move together, but right now, they're all rising.
The yield on the 10-year Treasury climbed to nearly 5.18% on Thursday and is back to where it was in 2007, before the 2008 financial crisis and Great Recession sent yields toward zero.
It's been climbing since bottoming out below 0.50% in 2020 because of the COVID pandemic. But its rise has accelerated since the end of February, when the war with Iran sent oil prices and worries about inflation much higher. The 10-year yield was sitting at just 3.97% before the United States and Iran attacked Iran.
That climb has pulled the average long-term U.S. mortgage rate to 7% for the first time since early 2025, making it even more difficult for would-be homebuyers to afford a house.
It's also slowed a rally for the U.S. stock market, which had returned to the brink of an all-time high earlier this week. High Treasury yields undercut prices for all kinds of investments, from stocks to gold to cryptocurrencies. The thought is: Why should anyone pay high prices for riskier investments or ones that pay zero dividends when U.S. Treasurys are paying more than before?
Much of the recent rise in Treasury yields is because of higher oil prices and worries about inflation. When inflation is high, $1 next year will buy less than $1 does today. And bonds generally pay a fixed amount of interest for years in the future, making inflation a big risk.
At the same time, governments worldwide continue to rack up more debt. That means they're issuing more bonds to borrow, and the consistent increase in supply pushes down on their prices. All the bonds getting issued by big companies looking to build AI data centers and otherwise expand their businesses are having the same effect.
Part of the rise in Treasury yields is also because the U.S. economy looks so solid despite its many challenges. Treasury yields got a jolt Wednesday, for example, after a preliminary report suggested growth in U.S. business activity surged to its strongest level in more than five years.
Such data could convince the Federal Reserve that the economy is strong enough to withstand more increases to the very short-term interest rate that it controls directly. The Fed hiked its federal funds rate last week for the first time since 2023 in hopes of slowing the economy and removing some of the fuel for inflation.
Traders are betting the Fed will hike rates again this year and next, which has sent shorter-term Treasury yields higher.
It's not just the U.S. Treasury market seeing yields rise. They're climbing worldwide as investors see mounting debt loads and inflation across continents.
The 10-year yield for Germany, long seen as one of the safest places to lend money in Europe, is near 3.60% and back to where it was in 2008. The European Central Bank raised its own interest rate earlier this month in hopes of slowing inflation.
The Japanese 10-year yield is at 3.08%, a huge turnaround from the negative yield it was carrying as recently as 2020 when officials were trying to stimulate the economy.
