Why bond yields are rising and why everyone should care

WASHINGTON (AP) — Interest rates on government bonds are rising again around the world, making borrowing more expensive for consumers and businesses and heightening concerns about whether governments are issuing more debt than financial markets can handle.

Rising bond yields are one of the few forces in the world strong enough to get politicians to snap to attention. They can also have a big impact on Americans' personal finances and on the broader economy. The bond market can dictate how much ordinary people have to pay on their mortgages and car loans, as well as how much they earn from their savings accounts and 401(k) plans.

Fighting has flared up again in the Middle East, causing oil prices to jump and renewing inflation worries. Investors typically demand higher interest rates, or yields, on government bonds when inflation is high or they think it may get worse.

On Tuesday, the yield on the 10-year Treasury, which strongly influences mortgage rates, reached 4.80%, the highest since early 2025. The 5-year Treasury, which is a benchmark for auto loans, touched its highest level since October 2025 at 4.55%.

Here’s a look at what’s going on and how it affects everyone:

In addition to inflation concerns, several other factors are also pushing bond yields higher: Annual U.S. government budget deficits remain higher than they were before the pandemic, forcing the government to borrow more to pay all its bills. Large tech firms are also borrowing heavily to build out the data centers powering AI. And last Friday, Federal Reserve Chair Kevin Warsh signaled that the central bank may still have to lift its short-term rate in the coming months if inflation stays stubbornly elevated.

Rising yields have caught the attention of policymakers around the world, including Treasury Secretary Scott Bessent, who last month announced an unusual intervention in the bond market to restrain rising yields.

Robin Brooks, a senior fellow at the Brookings Institute, said Bessent's moves and Warsh's promise to corral inflation have likely kept longer-term rates lower than they would otherwise be and betray a rising concern about where yields are headed.

“You should care because this stuff under the surface is really bubbling,” Brooks said. “And you can tell it is because policymakers are starting to get pretty agitated.”

Yet Bessent downplayed the overall rise in U.S. yields in a conversation Tuesday with Fox Business host Larry Kudlow on the sidelines of the G20 finance ministers' meeting in Asheville, N.C.

“I don’t think we are in any kind of a dire situation,” Bessent said. He argued that other countries' bonds have seen bigger yield increases.

When governments and big companies borrow money, they don’t ask a bank for a loan. Instead, they sell IOUs to investors and promise to repay the money with a certain interest rate. If those IOUs are set to be repaid many years from now, they’re called bonds. (IOUs the U.S. government will repay more quickly — within a few months or a few years — are called bills or notes.)

Investors in the bond market often buy and sell these bonds after they’re issued, and they continue to pay the same interest rate. But if the bond starts to look less attractive, a buyer can get bonds that were earlier worth $100 for less than that. Such a drop in price means the new buyer will get a bigger return, percentagewise, on their money than the interest rate the bond pays on its face value. Those payments are called the bond’s yield.

When investors sell bonds, or buy far fewer of them than they did in the recent past, that pushes down bond prices, just like a stock market sell-off causes stock prices to plunge. But when bond prices fall, that lifts bond yields, which move in the opposite direction.

In the 21-nation euro zone, inflation jumped in August to 3.3%, the highest in three years, the European Union' statistical agency said Tuesday. As a result, investors expect the European Central Bank will boost its short-term rate when it meets next week. Ten-year German bonds have already reached 3.35%, the highest in more than 15 years.

And 10-year U.K. bonds are now paying 5.14%, approaching levels not seen since the 2008-2009 global financial crisis. Rates in Japan are also rising.

Most nations ramped up their spending during the pandemic to support laid-off workers and idled businesses, but haven't cut back since. Investors may be increasingly worried about how sustainable all the borrowing is, Brooks said, and are demanding higher yields as compensation for taking on what they see as greater risk.

Rising global instability, with ongoing wars in Ukraine and Iran, haven't helped, Brooks added.

“You're dealing with a global sell-off which goes back to this kind of global stimulus that we had during COVID,” Brooks said. “The chickens for that are now coming home to roost.”

The easiest example is mortgage rates. Rates for these loans tend to follow the path of 10-year Treasury yields. The average 30-year fixed-rate mortgage is near its highest level in a year, discouraging people already worried the price of homeownership may be too high.

Generally, higher yields and rates benefit people who are savers. It means they are earning more from lending money to the U.S. government or sticking their cash in a high-yield savings account.

Higher yields and rates, meanwhile, tend to hurt people who are borrowing money. They also drag on prices for stocks, gold and even cryptocurrencies. The thought is: Why should anyone pay high prices for riskier investments when U.S. Treasurys, which are supposed to be safer, are paying more than before?

It’s no secret that the U.S. government has a lot of debt. Officials at the Federal Reserve, economists, investors and many other voices have been saying for years that the U.S. government is on an unsustainable path with how much it spends versus what it brings in.

Last month, the Congressional Budget Office estimated the federal government's budget deficit would top $2 trillion this year, equal to about 6% of the U.S. economy, an unusually high figure outside recessions and wars. The government also said last month that its total debt — the cumulative total of all the deficits — has reached a gargantuan $40 trillion.

The unknown has always been when or if a tipping point would arrive that turns the worries about the U.S. government’s debt into a panic. That would cause investors to quickly dump their Treasurys, which would sent yields surging.

And while yields have climbed, they haven’t done so at such a pace to suggest a tipping point is here.

Importantly, a measure in the bond market that shows how worried bond investors are about potential bond defaults by several big economies’ governments has not risen excessively, according to strategists at Macquarie.

The seal of the Treasury Department is pictured before Treasury Secretary Scott Bessent arrives to speak at a news conference, Monday, Aug. 24, 2026, at the Treasury Department in Washington. (AP Photo/Julia Demaree Nikhinson)

Treasury Secretary Scott Bessent speaks to reporters at the G20 Finance Ministerial in Asheville, N.C., Tuesday, Sept. 1, 2026.(AP Photo/Gerald Herbert)

Treasury Secretary Scott Bessent speaks at a news conference, Monday, Aug. 24, 2026, at the Treasury Department in Washington. (AP Photo/Julia Demaree Nikhinson)

SACRAMENTO, Calif. (AP) — The California Assembly opted not to vote Tuesday on legislation meant to help wildfire victims, deciding at the last minute to push back a decision on a bill that some Democrats, including Gov. Gavin Newsom, said wouldn't meaningfully address the financial challenges caused by catastrophic blazes.

Lawmakers introduced the legislation over the weekend after they rejected an ambitious proposal by Newsom that would have limited electric companies’ financial liability for fires sparked by their equipment.

After deciding not to vote Tuesday, Assembly Speaker Robert Rivas said lawmakers would revisit the issue this fall.

“The proposal before us does not yet deliver the relief, accountability or meaningful reform that Californians deserve,” the Democrat said in a statement. “So, we are going back to work — and we will not stop until we have done everything in our power to deliver real results.”

Newsom's plan that was rejected over the weekend would have reduced the amount utilities had to pay some victims and barred insurance companies from suing electrical companies to get reimbursed for damages paid out to homeowners.

The governor said the last-minute compromise he made with lawmakers would have had some benefits for wildfire victims, such as getting paid faster, but that it failed to make necessary, sweeping changes to tackle the question of who covers the cost of fires ignited by utility equipment.

"We need comprehensive structural reform to protect the state from catastrophic fires, prioritize wildfire survivors, hold utility executives accountable, and provide reliable, affordable power to all Californians,” Newsom said in a statement.

Monique Limón, the president pro tempore of the state Senate, said she was disappointed that the deal wasn't passed Tuesday.

“Thousands of survivors made their voices clear — they needed reform to ensure the next wildfire does not continue to cause the mental and financial stress that recent disasters have placed on Californians,” the Democrat said in a statement.

Newsom's failure to get his full plan passed by the end of the session marked a rare loss for the governor, who has often found support for his policy wishes in the Democratic-led Legislature. It comes as he wraps his final session before leaving office in January.

Fire victims heavily criticized his proposal, even protesting outside the governor's mansion in Sacramento last week. They argued Newsom’s plan would have placed the needs of utilities over those of victims, while insurance companies said shifting more of the cost of damage onto them would have required them to raise rates for policyholders.

Joy Chen, executive director of Every Fire Survivor’s Network, a group of victims of the 2025 Los Angeles-area fires, said the deal was a win for them.

“Survivors from across California came to Sacramento and asked our elected representatives to stand with the people whose homes, communities and lives have been devastated,” she said in a statement. “They listened.”

Newsom hoped his plan would help stabilize the state's notoriously high electricity rates by protecting utilities from the full financial impacts of wildfires. Utilities have raised rates to pay for wildfire prevention and recovery as climate change has made the blazes more intense and frequent. Under California law, utilities have to pay damages for fires ignited by their equipment, even if a judge doesn’t find them negligent.

The question of who should cover the cost of utility-sparked fires has persisted throughout Newsom’s tenure, which began after the most destructive wildfire in state history. He signed a law in 2019 — his first year in office — that created a $21 billion fund, paid for by utility shareholders and ratepayers, to help utilities pay for wildfire damages if they take certain safety measures. He and lawmakers agreed last year to supplement the pot of money with another $18 billion fund.

Newsom unveiled his latest proposal as Southern California Edison faces claims from the state’s second-most destructive blaze, a 2025 fire that killed 19 people outside of Los Angeles.

The bill lawmakers were slated to vote on would have created a program to ensure that fire victims get paid more quickly, banned hedge funds from profiting from wildfire claims and barred utility executives from receiving bonuses if their company's equipment sparked a blaze that ends up damaging or destroying more than 500 buildings.

The California Catastrophe Response Council, which oversees the wildfire fund, would have to appoint an administrator to create a process to resolve victim claims more quickly.

Pacific Gas & Electric, which filed for bankruptcy in 2019 after it faced claims from a devastating Northern California blaze started by the utility's equipment, and Edison International, Southern California Edison's parent company, were disappointed with the deal. They said in a letter to lawmakers that the bill would fail to stabilize rates for Californians and wouldn't provide “durable, long-term solutions” for compensating victims, sustaining the state's wildfire fund, or managing utilities' financial risk.

Assemblymember Rick Zbur, a Democrat, called it a “disaster” that lawmakers couldn't agree on making more sweeping reforms.

“We’re nibbling around the edges, and we’re not dealing with the structural issues,” he said at a hearing on the bill.

Katelyn Roedner Sutter, of the Environmental Defense Fund, was also underwhelmed with the proposal, saying it wouldn't go far enough to lower the risk of fires and stabilize electricity and insurance rates.

“The best I can say about this bill is it's fine,” she said after the hearing.

Lawmakers also passed a bill Monday that would create the nation’s first standards for testing and cleaning up lead, asbestos and other toxic contaminants inside homes after a wildfire.

Assemblymember John Harabedian, a Democrat who wrote the bill, said it was borne out of the deadly 2025 Eaton Fire that swept through Altadena, which he represents. He said it’s important for lawmakers to “figure out very quickly how to protect wildfire survivors and rebuild communities,” and the bill is one way to do that.

Associated Press reporter Dorany Pineda in Los Angeles contributed to this report.

FILE - California Gov. Gavin Newsom attends the National Association of Latino Elected and Appointed Officials conference in Los Angeles, July 14, 2026. (AP Photo/Jae C. Hong, File)

Senate President pro Tempore Monique Limón, right, listens to speakers with, from right, state Senators Aisha Wahab, Sabrina Cervantes and Laura Richardson during a floor session in the Senate Chambers at the Capitol, Monday, Aug. 31, 2026, in Sacramento, Calif. (AP Photo/Jeff Chiu)

Assemblymember Jacqui Irwin, right, talks with Assemblymember Steve Bennett during an Assembly session at the Capitol, Monday, Aug. 31, 2026, in Sacramento, Calif. (AP Photo/Jeff Chiu)