Shanaz Musafer
Business reporter
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What’s happening in the bond markets?
A bond is a bit like an IOU that can be traded in the financial markets.
Governments generally spend more than they raise in tax so they borrow money to fill the gap, usually by selling bonds to investors.
As well as eventually paying back the value of the bond, governments pay interest at regular intervals so investors receive a stream of future payments.
UK government bonds – known as “gilts” – are normally considered very safe, with little risk the money will not be repaid. They are mainly bought by financial institutions, such as pension funds.
Interest rates – known as the yield – on government bonds have been going up since around August.
The yield on a 10-year bond has surged to its highest level since 2008, while the yield on a 30-year bond is at its highest since 1998, meaning it costs the government more to borrow over the long term.
The pound has also fallen in value against the dollar over the past few days. On 7 January it was worth $1.25 but it has now fallen to just above $1.21.
Why are bond yields rising?
Yields are rising not just in the UK. Borrowing costs have also been going up in the US, Japan, Germany and France, for instance.
There is a great deal of uncertainty around what will happen when President-elect Donald Trump returns to the White House later this month. He has pledged to bring in tariffs on goods entering the US and to cut taxes.
Investors worry that this will lead to inflation being more persistent than previously thought and therefore interest rates will not come down as quickly as they had expected.
But in the UK there are al
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