Let’s Talk Bonds. Treasury Bonds.

**Jessica Mendoza** (0:05)
The bond market. Even people who don't follow business news might have heard that it was pretty chaotic this week.

**SPEAKER_2** (0:15)
The US bond market is raising alarm bells for the economy.

**SPEAKER_3** (0:18)
Stocks sliding, oil climbing, and the bond market flashing a warning for Washington, DC.

**Jessica Mendoza** (0:25)
Bonds are the main way the US government borrows money. And this week, the interest the government has to pay on longer-term Treasury bonds, what's called bond yields, climbed to its highest level since 2007
And that's got the Trump administration and markets worried.

**SPEAKER_2** (0:44)
Breaking economic news now, the Dow closed down more than 700 points today as stocks reacted to the volatile bond market.

**SPEAKER_4** (0:52)
And the US. Treasury, which has stepped in to calm the bond markets and address a relentless rise in borrowing costs.

**SPEAKER_5** (1:00)
That all comes as the national debt officially passed the $40 trillion mark this week.

**Jessica Mendoza** (1:09)
There's a lot to unpack here. Why did bond yields spike this week? What does it mean for average Americans like you and me? Is the government doing anything about it? And how concerned should we be?
Welcome to The Journal, our show about money, business and power. I'm Jessica Mendoza. It's Friday, August 21st.
Coming up on the show, let's talk bonds, Treasury bonds.

**SPEAKER_6** (1:51)
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**Jessica Mendoza** (3:28)
To wrap my head around the bond market drama, I talked to our colleague Greg Ip, The Journal's chief economics commentator. Greg, how would you explain to a five-year-old or, you know, a 37-year-old, what is a bond and why it's an attractive investment?

**Greg Ip** (3:45)
Sure, a bond is just like a loan, essentially. When you buy a bond, you're lending money to the federal government. It'll pay you interest every year for the life of that loan, and then at the end of the loan, you get your money back.

**Jessica Mendoza** (3:57)
The interest rate or the yield on a US. Treasury bond changes from day to day, depending on what investors are willing to pay.

**Greg Ip** (4:05)
And Treasury bonds are the most important bonds of all because they're basically risk free. The Treasury is simply not going to default. You will always get your money back.
For that reason, they're used as the benchmark to measure almost every other interest rate in the economy. So when you go shopping for a house and you need to get a mortgage, your mortgage rate is directly affected by the yield on a Treasury bond.

**Jessica Mendoza** (4:28)
The same is true for your car loans, your personal loans, pretty much any kind of consumer debt. And so basically, US. Treasury bonds are kind of the ultimate bond, the granddaddy bond, because they are so, considered so safe.

**Greg Ip** (4:43)
Treasuries are super safe. There's also a lot of them. So they're very easy to buy and sell, which we say that they're extremely liquid.
And they're very useful. So obviously they help the federal government borrow money, but if you need to simply stick your money somewhere that's safe, Treasuries provide that service. And they don't just provide it to you and me, they provide it to foreign governments and central banks and so on all around the world.

**Jessica Mendoza** (5:06)
As bonds are bought and sold, their yields fluctuate.

**Greg Ip** (5:10)
And they will fluctuate in response to various information out there that investors are evaluating that determine exactly what interest rate or what yield they think is a fair yield to get on a bond.

**Jessica Mendoza** (5:23)
So what factors do bond traders look at?