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.
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.
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.