What's going on?

The selloff of US government bonds deepened even further on Monday, with some prices touching lows not seen since 2014 � and investors are concerned that the trend may spill over into stock markets.

What does this mean?

Bonds have been steadily sinking lower this year as the US Federal Reserve hikes interest rates and inflation expectations in America tick up (inflation erodes the value of money, including the fixed amount that bonds pay investors). The selloff sharpened on Monday as markets digested fresh data on increasing inflation and girded their loins for the sale of $96 billion worth of new US government bonds later this week. When the total supply of something increases, the price tends to fall!


Importantly, the return � or �yield� � of 10-year US government debt (which moves inversely to its price) jumped to within a hair�s breadth of 3% on Monday. That�s around the level when investors start to get nervous that bonds might become so attractive that people sell some of their stocks to buy bonds instead.

Why should I care?

For you personally: Your borrowing costs will likely be heading up.

Rising bond yields have an impact on the rates that individuals have to pay to borrow money: as a �safe� asset, government bonds sort of set a minimum interest rate across the economy. Anything that�s a riskier bet than a government bond will probably have to pay higher interest � including a loan to you!

 

The bigger picture: Not all government bonds are totally secure.

Since governments generally print their own money, the bonds that they issue are often considered risk-free � because what government wouldn�t pay back its debts when it can print money at will? One big exception to this rule, however, are government bonds in the eurozone. The European Central Bank is politically independent from the governments that use its currency, and investors learned through the financial crisis that the sovereign debt of countries like Greece isn�t necessarily devoid of danger.