10-year Treasury yields topped 5% for the first time in 16 years Monday – and that’s sparked panic on Wall Street.Ted Shaffrey/AP Photo
A deepening crash in the bond market has sparked panic on Wall Street in recent weeks.
Treasury prices have plummeted, sending benchmark 10-year yields above 5% for the first time in 16 years.
Here’s what the market meltdown means for stocks, the economy, and ordinary people.
To the average American, the word ‘bond’ might suggest an Eton-schooled MI6 agent who takes his Martini shaken, not stirred, rather than the far-from-sexy financial investment favored by boomers.
But in recent weeks, the asset class has hit headlines by suffering one of the worst routs in market history, in a sell-off that’s ringing alarm bells on Wall Street.
The collapse ticked off a new milestone Monday, when yields on 10-year US Treasury notes topped 5% for the first time in 16 years. Yields move inversely to bond prices.
Here’s what the meltdown means for your investments, the economy, and your wallet.
What are bonds, Treasurys, and yields?
Big-name investors, Wall Street bankers, and financial journalists tend to use lots of unnecessary jargon when they talk about bonds – and anybody who isn’t a markets junkie tends to find that pretty off-putting.
To lay things out as simply as possible:
Governments and companies issue bonds when they want to borrow money. If you buy a bond, you’re giving them a loan. The bond itself functions as an IOU note, with the holder entitled to regular interest payments and repayment of the loan in full at a later date. Unlike traditional loans, the ownership of bonds can be easily transferred – meaning, they can be freely traded in a secondary market.
Bonds issued by the US government are called Treasurys. Ten-year Treasurys function as a benchmark for that market and help set the price of other loans and investments.
Bond yields are the interest-rate returns a holder can expect, as a proportion of their capital investment. They’re expressed as a percentage.
Bonds may be issued for different time periods – or maturities -…
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