You've likely heard a lot about the stock market lately, but there's another market that you should know about too: the less-discussed bond market.
Investing in Stocks vs. Bonds
Investors in the stock market own stock in a company. But what does owning a bond mean?
"A bond is a promise between a borrower and a lender," said Steven Conners, president and founder of Conners Wealth Management.
IN CASE YOU MISSED IT | US consumer confidence plunges to lowest in 5 years on tariff worries
Typically, when discussing the bond market, the "borrower" refers to the U.S. government, specifically the U.S. Treasury, and the "lender" is anyone who buys a bond. The borrower guarantees a return for the lender.
How Bonds Work
Let’s say you buy a 10-year bond for $1,000 at a 4% rate. You'd collect $40 annually and get your principal back after ten years.
Investing in the bond market has long been considered a very safe bet.
"The United States is still the dominant economy in the world," said Conners. "So, the U.S. Treasury market being the largest is still looked upon as the safest."
Recent Headlines in the Bond Market
Now, let's delve into why the bond market has been making headlines recently.
"I was watching the bond market," President Donald Trump said after pausing most of his tariffs last month. "The bond market is very tricky. I was watching it."
The rate for the 10-year Treasury yield dropped after his original April 2nd tariff announcement. That's typical when the stock market slides and investors move toward bonds.
IN RELATED NEWS | Tariffs: The potential positive impact on your finances
"As stocks were falling, we were seeing yields come down," said Steve Wyett, senior vice president and chief investment strategist at BOK Financial. "Bonds were acting the way they were. And then they reversed. And we started to see stocks were still going down, but bond yields started to go up."
This shift meant some people holding bonds were selling them off — a sign they were losing confidence in the U.S. economy.
"It was clear that there was a growing stress in the bond market," Wyett added.
Impact on Americans
The bond market has fluctuated less since, but it can still have major implications for Americans. It serves as a linchpin of the U.S. economy, impacting other areas, including borrowing.
"The bond market matters to the average consumer because it affects what we pay for borrowing costs," said Conners. "So whether it's a new home, a new car, credit card payments, everything is based off of the prevailing interest rates. So it directly hits home when it comes to what the general interest rate level is."
That means what happens in the bond market eventually impacts your wallet.
This story was initially reported by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
