Why the bond market is flexing its muscles, and why everyone needs to care

Rising bond yields this week have pushed the U.S. Treasury Department into an unusual intervention, reviving worries that higher borrowing costs could curb consumer spending. The move also adds to concerns that investors may start questioning the pace of government debt financing. The article explains how the bond market works: governments and large firms sell debt “IOUs” with fixed interest, and if those bonds become less attractive, their prices fall, lifting “yield.” The U.S. Treasury market—$31.5 trillion as of July—is still central, but competition from higher-yielding overseas sovereign debt (Japan, UK, Germany) has helped drive U.S. rates higher.