In short, if the government plans to spend a lot, and people worry about prices going up, bond yields rise. This can make borrowing more expensive for everyone
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Government Budget: When the government makes a plan for how to spend money (the budget), it can include a lot of spending on things like roads, schools, or healthcare Or Tax cuts or Big Beautiful Bill
Rising Bond Yields: If people think this spending will cause prices to go up (inflation), they want more money back for lending to the government. So, they ask for higher interest on bonds, which is called a higher yield.
Why It Matters:
More Expensive Loans: If bond yields go up, banks might charge more for loans (like for houses or cars), making it costlier to borrow money.
Investing Choices: People might choose to invest in bonds instead of stocks if they think bonds are safer or offer better returns.
Sam likes candy, and in the past, Sam has been very good at paying kids back for candy with a little bonus for doing so. Sam wants more candy, but Sam has lately been acting weird and unreliable, so no one wants to give them any because they aren’t as confident that they will get paid back. Sam is now offering to give back even more in the future than his usual amount in the hopes that someone will give him candy. Sam is still acting pretty sketch, and getting more sketch every day.
Then Sam needs to start resorting to force and/or threats of force to ensure his access to candy. Don’t bother stealing from the candy store, but beat up weaker kids and take their lunch money to buy candy, with the clear implication that any resistance in the future will lead to more extreme violence.
If you lend money to your flaky cousin, you might want more interest to cover the risk of him never paying you back. If you lend money to your twin sister who has never missed a single thing in her life, maybe half a percent will do.
Well, the US just started moving into flaky cousin territory after two centuries of reliable sister.
In short, if the government plans to spend a lot, and people worry about prices going up, bond yields rise. This can make borrowing more expensive for everyone
Tap for longer
Government Budget: When the government makes a plan for how to spend money (the budget), it can include a lot of spending on things like roads, schools, or healthcare Or Tax cuts or Big Beautiful Bill
Rising Bond Yields: If people think this spending will cause prices to go up (inflation), they want more money back for lending to the government. So, they ask for higher interest on bonds, which is called a higher yield.
Why It Matters:
Eli5 version:
Sam likes candy, and in the past, Sam has been very good at paying kids back for candy with a little bonus for doing so. Sam wants more candy, but Sam has lately been acting weird and unreliable, so no one wants to give them any because they aren’t as confident that they will get paid back. Sam is now offering to give back even more in the future than his usual amount in the hopes that someone will give him candy. Sam is still acting pretty sketch, and getting more sketch every day.
Then Sam needs to start resorting to force and/or threats of force to ensure his access to candy. Don’t bother stealing from the candy store, but beat up weaker kids and take their lunch money to buy candy, with the clear implication that any resistance in the future will lead to more extreme violence.
That’s just taxation. Which is something Sam really really hates. Easier to just borrow money forever. It’s risk free, after all.
No, taxation is beating up people he lives with. I’m suggesting force against those he doesn’t care about.
Also, risk is a factor.
If you lend money to your flaky cousin, you might want more interest to cover the risk of him never paying you back. If you lend money to your twin sister who has never missed a single thing in her life, maybe half a percent will do.
Well, the US just started moving into flaky cousin territory after two centuries of reliable sister.
So I’m gonna go from a 27% interest rate on my emergency credit card that is always at its limit to, what, like a 35% interest rate?
Ballpark Yeah but it will not happen overnight.
Is this why BTC is breaking new record highs as well?
Yes. Lack of trust in dollar due to the fiscal shenanigans