Bonds 101

The basics behind every number on the Feeds page.

What a bond actually is

A government bond is a loan. When a government wants to spend more than it collects in taxes, it borrows the difference by selling bonds — an investor hands over cash today in exchange for a promise of regular interest payments and the return of that cash at a set future date (the bond's "maturity").

Yield vs. price — the part that confuses people

A bond's yield is the effective annual return an investor gets for holding it, and it moves opposite to the bond's price. When investors want to hold more government debt, prices rise and yields fall. When investors grow nervous about a government's ability to repay, they demand a bigger return to compensate for the risk — so they sell, prices drop, and yields climb. That's why "yields are rising" in the news usually signals falling confidence, not good news.

Why the yield curve matters

The yield curve just lines up yields by maturity — 2-year, 10-year, 30-year, and so on. Normally longer maturities carry higher yields, since more can go wrong over more time. When that relationship flattens or inverts, it's historically been read as a signal that investors expect economic trouble ahead.

Why this affects you even if you own no bonds

• Mortgage and loan rates are priced off government bond yields, so rising yields tend to push borrowing costs up across the economy.
• Government interest payments compete with other spending — more debt service can mean less room for everything else, or pressure for higher taxes.
• Currency value often moves with bond yields, which affects the price of imported goods.

See also: the Glossary for quick definitions, and What Debt Means for You for the personal-finance angle.