How the Bond Market Will Affect Your Wallet

The Journal.

This episode of The Journal explores how rising U.S. Treasury bond yields—near a 20-year high—are impacting everyday Americans through highe

Key takeaways

• Rising Treasury yields reflect growing investor concerns about persistent inflation and long-term economic stability.
• Geopolitical events such as U.S. military strikes in the Strait of Hormuz have driven oil prices higher, increasing inflation pressures.

Main topics

• U.S. Treasury bond market volatility
• Inflation expectations and their impact on bond yields

Notable quotes

"If the Fed hikes rates again, it would be the first time in years. People are very uncertain about what the Fed is actually going to do."

Conclusion

As bond yields climb due to inflation concerns, geopolitical instability, and Fed uncertainty,

Transcript preview

Speaker 1 (0:05) Bond is back, as in the U.S. bond market is back in the news. This week, yields on long-term U.S. treasuries climbed near a 20-year high, and that has once again set off alarm bells across markets. So real quick, Bonds 101. The U.S. Treasury borrows money by selling bonds to investors. We're talking about the biggest global investors, huge insurance companies around the world, pension funds, big banks, anyone that needs to put large deposits into a very safe instrument. That safety is what makes bonds attractive to investors. But they can also make a little bit of money. The Treasury pays out interest. How much interest depends on how investors are feeling about the economy. So if demand from investors is weak, those interest rates, known as bond yields, go up. Speaker 1 (1:02) Let's say the Treasury Department wants to sell $10 billion of new debt and it sets a 5% interest rate on that for 10 years. If investors think that's fair, they will line up and buy all of that debt. But if there's not enough buyers in the debt sale, they're going to have to increase the rate in order to entice more. Speaker 1 (1:27) Colleague Jack Pitcher covers markets, and he's been keeping a close eye on the upheaval in the bond market. He says there are a lot of reasons why it's happening, but the main one is a very familiar problem. Inflation. Inflation expectations are going back up right now. Oil prices are higher. We have tariffs. All these things are making it hard to get inflation back down to the Fed's 2% target. It's been really sticky around 3%. And suddenly this is top of mind for everyone again. People are concerned this problem is not going to go away on its own. For listeners who maybe haven't been following the bond market, why should they care about what's going on? With rates in the government bond market going to their highest level in 20 years, it really impacts everything you as a consumer might touch debt-wise. Speaker 1 (2:24) Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, September 4th. Coming up on the show, how high inflation is pressuring the bond market. Speaker 1 (2:57) Like most of us, bond investors hate high inflation. That's because high inflation often means that the government raises interest rates. And higher interest rates hurt the value of bonds that are already in the market. So let's say you're holding a 10-year treasury bond that has a 5% interest rate. For those 10 years, you're locked in at that rate. But if rates on new bonds go up, let's say the Federal Reserve has to hike interest rates a lot, in a year from now, bonds are paying... Speaker 1 (3:26) seven or eight percent and yours only pays five, the value of your bond goes much lower. People would rather buy the new bond with the higher interest rate. So if you need to sell that before it matures, the value's gone down. That's a risk. That's why higher rates hurt bond values. As inflation numbers have fluctuated in the last few years, bond investors have been watching closely. Things like pandemic relief, tariffs, wars in Europe and the Middle East. Speaker 1 (3:54) They've all reverberated in the bond market. The last couple of weeks, though, two things happened that have pushed bond yields higher. First, renewed hostilities in the war with Iran. Breaking news. As I speak, U.S. Central Command says American forces are striking Islamic Revolutionary Guard Corps targets in Iran. The U.S. attacked a small island in the Strait of Hormuz on Sunday. The Pentagon also targeting Iran's radar systems. Iran firing missiles and drones at U.S. allies. So in general, since the war broke out, oil prices, they're up a lot. As it has dragged on longer and people are trying to figure out how long it will drag on, how big the disruption will be, it's moved oil