El presidente estadounidense Donald Trump habla en una conferencia de prensa con Elon Musk en el Despacho Oval de la Casa Blanca, el viernes 30 de mayo de 2025, en Washington. (AP Foto/Evan Vucci)

By Hamza Shaban

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Compared to the high-flying mega-cap tickers, the roller-coaster ride of crypto, or the rags-to-riches drama of meme stocks, the US bond market can seem like a sleepy affair.

As millions of people flooded into the stock market over the past few years thanks to Robinhood (HOOD), COVID stimulus payments, and a booming S&P 500, general stock market literacy and an understanding of the things that move markets — Big Tech, earnings and outlooks, and even why economic data moves markets — seem to have made noticeable progress.

Not, however, for bonds. Throughout it all, the bond market and its yields remain the uneaten vegetables on the plate. A chore. Something that is there for safety, not to bring you wealth. Something to be googled later.

But with the slow drumbeat of bond market worries getting louder, now is the time to brush up.

Read more: Savings bonds and how they work

Clearly, the bond market and its relatively slower cadence can mask its huge importance. And its tremors and signals of trouble in recent weeks serve as an important reminder of why a keystone of the global financial system commands so much attention.

Yields on US bonds have been elevated as investors recoil from shifts in trade policy and the prospects of an ever-widening national debt. Yields move in the opposite direction of prices, so as a sell-off intensifies, yields increase, reflecting heightened concerns that buying government debt carries more risk.

Higher yields have a host of consequences that can be felt throughout the economy, as they set the cost of borrowing. High yields mean high mortgage rates, more expensive business loans, and slower economic activity — hence why they're "bad" for stocks and why bonds matter, whether you own them or not.

Governments, massive borrowers themselves, may also find trouble financing the administration of the state if interest rates get high enough. The fear that greater government borrowing might lead to even higher rates and a default crisis has rattled the bond market.

All of which is now at the center of debates in Washington and on Wall Street right now.

"Bond yields — especially Treasury yields — represent the cost of financing for governments." Kathy Jones, Schwab’s chief fixed income strategist, told Yahoo Finance. "When the yields rise, government spending costs go up and vice versa."

Concerns of spiraling US debt were reinforced Wednesday, as President Trump's signature tax bill is expected to increase deficits by $2.4 trillion over the next decade, according to an analysis by the nonpartisan Congressional Budget Office. Which is why the bond market — and Elon Musk — are blowing a raspberry.

All the while, investors have also been behaving in ways that challenge the status of US Treasurys as a safe-haven asset. Bonds typically form part of an investment strategy that offsets riskier assets, like stocks, with more stable, but modest returns, which is why you own them if you have a target-date fund in your 401(k). Underpinning the reliability of bonds is the reputation of the US government: its institutions, economic stability, and integral role in global trade. Hence the controversy, once again.

With investors keeping their distance from bonds during heightened volatility, it's clear how perceptions are shifting.

"The recent volatility in the bond market reflects the combination of policies that are working at cross purposes," Jones said. "Fiscal policy is expansive at a time when the economy is growing at a relatively healthy rate and inflation is still far above the Fed’s 2% target. Meanwhile, tariffs and anti-immigration policies could mean slower growth and higher inflation, but they are being applied inconsistently. The market is caught between these forces and struggling to find a coherent path."

And until that happens, bonds will continue to be in focus.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

Source: Yahoo Finance