To the average investor, the bond markets may seem like a concern better left to Wall Street bigwigs. But what happens in these markets can have major implications not only on the larger economy but also on household budgets.<\/p>\n
\u201cKeeping an eye on the nearly $32 trillion market for U.S. government bonds, called the Treasury market, is important because it offers a clear signal of where the economy may be headed,\u201d said The New York Times<\/a>. It can \u201caffect everything from student loans<\/a> to the housing market.\u201d<\/p>\n <\/p>\n Lately, what is happening with bonds has been setting experts on edge. Here\u2019s a breakdown of what to know to make sense of it all.<\/p>\n The Week<\/p>\n Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.<\/p>\n <\/p>\n \nSUBSCRIBE & SAVE\n<\/p>\n <\/a><\/p>\n Sign up for The Week’s Free Newsletters<\/p>\n Join more than 350,000 subscribers and keep yourself informed with a selection of The Week\u2019s most interesting, enlightening and entertaining stories – plus daily puzzles.<\/p>\n Join more than 350,000 subscribers and keep yourself informed with a selection of The Week\u2019s most interesting, enlightening and entertaining stories – plus daily puzzles.<\/p>\n Latest Videos FromThe Week<\/p>\n How do bond markets work?<\/p>\n Bonds work similarly to loans, wherein someone \u2014 in the case of bonds, the government, a company or a municipality \u2014 borrows money. When investors purchase a bond, they are effectively funding that loan. They will then earn interest on the loan, known as bond yield, in addition to receiving repayment after a certain period of time.<\/p>\n But \u201cbonds can fluctuate in value,\u201d and typically, \u201cbond prices and yields move in opposite directions from each other,\u201d said NPR<\/a>. So \u201cif bond prices fall \u2014 like they are now \u2014 investors demand to be paid more in interest as additional compensation,\u201d whereas \u201cif bond prices are rising, investors are fine getting less in interest since they are holding bonds that are appreciating in value.\u201d<\/p>\n What impact do bond yields have on consumers?<\/p>\n In short: They impact interest rates, which translates to how much people pay to borrow. Mortgages are impacted, given that the \u201c10-year Treasury yield serves as an important guide for mortgage rates<\/a> as it generally moves in tandem \u200cwith mortgage-backed securities,\u201d said Yahoo Finance<\/a>. In addition, \u201crates on new auto loans<\/a> and other fixed-rate consumer debt \u2060also tend to drift higher as market rates and lenders\u2019 funding costs rise, though the pass-through is not immediate or exact.\u201d<\/p>\n Do the bond market and the stock market affect each other?<\/p>\n Generally speaking, \u201cbond investors and stock investors tend to see things differently,\u201d said NPR, simply due to the nature of the investment itself. While \u201cbond investors care, primarily, about whether they\u2019ll get paid back,\u201d stock investors \u201ctend to make a more straight-up bet on corporate profits.\u201d That can explain why as of this month, the stock market is soaring but the bond market is sounding the alarm.<\/p>\n This divergence will likely only hold true to a certain point, however. Ultimately, \u201cyields matter for investors\u2019 assessment of stocks\u2019 value,\u201d and a \u201csharp rise in yields or intense volatility in the bond market can irk the stock market,\u201d said CNN Business<\/a>. Further, if \u201csigns emerge showing that inflation or rising borrowing costs are starting to tamp down economic growth,\u201d then the stock market could very well start showing signs of concern too, said NPR.<\/p>\n","protected":false},"excerpt":{"rendered":"To the average investor, the bond markets may seem like a concern better left to Wall Street bigwigs.…\n","protected":false},"author":2,"featured_media":866228,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[37],"tags":[28,112],"class_list":["post-866227","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/866227","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=866227"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/866227\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/866228"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=866227"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=866227"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=866227"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}