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What's all this angst about the bond market?

Well, what used to be one of the most reliable corners of global markets seems to have turned into an epicenter of investor anxiety. Stubborn inflation and endless government borrowing have fueled a sweeping selloff in U.S. Treasury bonds.

In fact, demand for higher returns has sent yields soaring. On Thursday, the yield on the benchmark 10-year Treasury reached 4.96%, the highest it's been — except for a brief interlude in 2023 — since 2007.

“The decades-long bull market in Treasuries is over,” SoFi Chief Market Strategist Liz Thomas said this week. “Investors are grappling with a new regime of higher inflation and higher yields.”

To better understand why this matters, let's take a step back.

Treasuries, or government bonds, are how the U.S. government borrows money. Just like any other loan, the government promises to make regular interest payments to a holder of a Treasury bond, plus return the bond's face value when it matures.

But Treasury bonds are also traded, which is where yields come in. Unlike the interest payout, which is fixed for the life of the bond, a bond's yield changes with its market value. When a market selloff lowers that value, a new buyer can snag rights to that fixed interest payment at a discount price, so they're getting more for less. That's why the yield rises when the price falls.

Historically, the Treasury market was considered the ultimate safe bet for the global financial system: a place for cautious investors to earn stress-free, albeit modest, returns. For much of the last 40 years, prices rose and the fixed-income side of investors' portfolios practically steered itself.

But the landscape has shifted over the past few years, and in recent weeks, Treasuries have rapidly lost much of their safe harbor appeal.

The most immediate worry is that inflation — stoked by the latest spike in oil prices — threatens to erode the value of existing bonds, and if the Federal Reserve raises interest rates, the Treasury may have to reward future investors more.

At the same time, there is a deeper structural concern: Will government leaders ever rein in the nation's debt, or will there be an endless supply of new bonds offered at higher interest rates?

So what?

Whether you invest or not, the bond market selloff has broad implications for you and the economy as a whole.

How yields impact borrowers

Higher yields lead to higher consumer borrowing costs. We often think of the Fed as the rate-setter, but lenders also look at long-term government bond yields when setting the interest rates they charge. Ironically, the link stems from how safe people feel with government bonds: Since the U.S. has never failed to make good on its debt obligations, it's a good benchmark for determining the risk of default on higher-risk loans.

Take mortgage rates. Because 30-year mortgage rates are closely linked to yields on 10-year Treasuries (people don't usually keep 30-year mortgages for longer than 10 years) they've been rising alongside 10-year yields. This week they averaged 6.76%, their highest level since June 2025, according to Freddie Mac.

How yields impact the government

Higher yields make government borrowing more expensive. Simply put, the U.S. government is spending more than it brings in — and has to borrow money to bridge the gap. The more the government needs to borrow, the more it issues in Treasuries. And the higher Treasury yields go, the more the government must spend to keep borrowing. As of July, it cost $1.17 trillion to maintain the national debt — an amount equal to 19% of all federal spending for the current fiscal year, according to the Treasury.

How yields impact investors

Higher yields change the risk-reward tradeoff for Treasury investors. Higher yields may sound like a good thing, but it all depends on whether you're a buyer or a seller — and your appetite for uncertainty.

More broadly speaking, higher yields are a reason to rethink what it means to have a diversified investment portfolio, according to SoFi's Thomas.

“Treasury bonds provide attractive yield at these levels and can be used for income, but they are less likely to provide diversification for stocks,” she said, suggesting investors consider commodities or gold to spread out their risks.

“Investors need to shift their expectations for bonds,” she said, challenging the traditional recommendation to maintain a 60/40 split between stocks and bonds.

“The main goal is to create a portfolio that you can stick with, which means diversifying properly is critical,” she said. “Bonds cannot do that job alone.”

Related Reading

The Death of the Safe Haven: How to Fix Your Bond Strategy as Yields Rise (Barron's)

How the Bond Market Will Affect Your Wallet (The Wall Street Journal)

The inflation genie could be out of the bottle — and bond markets are sounding the alarm (CNBC)

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