How will bond market turmoil affect you?

**SPEAKER_1** (0:01)
Could bonds be warning of trouble ahead?

**KB** (0:04)
When I first got on the market, at least I was getting interviews.

**Ian Hoskins** (0:06)
Businesses such as ours rely upon people having money in their pocket.

**SPEAKER_1** (0:10)
It's World Business Report from the BBC World Service.
On the way, the bond market has been flashing warning signs as investors grow more nervous about inflation and government debt. Plus, Russia gets a seat at the top table at the G20, and it's taken 20 years, but Victoria Beckham finally makes a profit on her fashion business. So does persistence pay off or do rich husbands do that job?
Now, bonds might not be something most of us think about every day, but what happens in the bond market can affect everything from mortgage rates and borrowing costs to the stock market. So a global sell-off in bonds has got everyone a little concerned. On Tuesday, UK borrowing costs jumped to their highest levels since 2008 Japanese borrowing costs jumped to highs not seen since the 1990s. And in the US, the two-year treasury yield, which is particularly sensitive to interest rate expectations, climbed to its highest level in a year. Well, Samira Hussain is the BBC's business correspondent in New York.

**Samira Hussain** (1:27)
Well, the bond market has been seeing their yields go up for a number of reasons. One of course is the higher energy costs. And especially since over the last two days, we've seen an uptick in terms of violence happening between Iran and the United States, both with regards to oil tankers and the Strait of Hormuz. And now, of course, the attacks that are happening by the United States in Iran, that's having a direct impact on energy prices. And then you have these worries about inflation, so how much more the cost of living is going to go up. And then you just have this overall kind of uncertainty. And so all of that is really driving bond markets to higher yields.

**SPEAKER_1** (2:13)
And how much of what's happening in the bond market is about concerns, like you were talking about, about inflation, and also how much of it is about the sheer amount of debt?

**Samira Hussain** (2:27)
That's a very good point. And so, yes, it's about inflation, but it's also the tools that are going to be used to try and combat inflation. One of the ways, of course, is for central banks to raise interest rates. And so you see a situation in which that the cost of borrowing for consumers and for businesses is going to be going up. And so businesses are turning around and saying to the government, well, if you want to borrow money from us, it's also going to go up as well. And then, of course, there is the enormous debt that the United States and other countries are carrying. And so there are concerns about just how high those debt levels are and what impact that will have on the returns. And so that's also really playing into what we're seeing right now with bond yields.

**SPEAKER_1** (3:16)
And clearly, this is something that will concern governments around the world. What kind of message do you think investors are sending those governments?

**Samira Hussain** (3:26)
Well, I can speak to what's happening in the United States in that, you know, you look at financial markets and, you know, they drop some 300 points when they saw just these bond yields hitting highs not seen in almost two years. And it's a sign of investors are getting really nervous. They're worried about the increases to interest rates, to the cost of borrowing. And remember, it's coming at a time in which you're seeing companies that are spending billions and billions of dollars investing into AI. There are all kinds of concerns about that because they haven't been seeing much return on their investments. There are all these whispers and actually loud screams about a possible AI bubble. Then you have all of this geopolitical instability. That's also weighing on investors' minds. And so I think people are getting pretty nervous.

**SPEAKER_1** (4:19)
And Samira, why does this matter to people?

**Samira Hussain** (4:22)
It absolutely matters because when you look at the bond yields, it also has an influence on what banks are going to be setting in terms of their rates for loans for everyday consumers. And so that can already push that up with banks. It's not just the central bank. Other factors can also lead to banks, commercial banks, into changing their rate of lending. And so when you see these bond yields going up, it actually could have an impact on the everyday consumer. And remember also that the reason why this is going up is because they're so worried about inflation. And that's already hurting or costing, rather, the everyday consumer.