What connects American debt with your mortgage?
Do you know what strikes me sometimes when I listen to the news? All those lofty slogans: "the yield on US Treasury bonds has risen", "debt rolling is reaching new records", "investors are reacting to the FED's decisions". And so what? The average person just blinks and shrugs. Yet what happens in the US bond market can even affect... your daily shopping or how much a mortgage costs in Poland... But okay, step by step.
What are US Treasury bonds anyway?
They are simply papers that the US government sells to investors — in exchange for cash. It promises to return the borrowed money after a specified time, and in the meantime, it will pay interest. Sounds trivial? Because it's just a regular loan. Only it's taken on a gigantic scale, as the US public debt already exceeds 34 trillion dollars. Yes, trillions. And yet investors keep buying them because the US has a reputation for always paying back. The question is: how much longer?
Alright, but what is yield?
Yield is the percentage profit that an investor can achieve by holding a bond. If you buy a bond for 100 dollars and receive 5 dollars in interest each year, your yield is 5%. But if someone else buys the same bond for 90 dollars because the price has dropped, their percentage profit will be higher — over 5.5%. And this is where the fun begins. Because yield is not fixed. It changes every day. It's like a thermometer of market moods: it shows how investors feel about US debt.
Who benefits from high yields?
Definitely not the US government. Because higher yields mean one thing — the government has to pay higher interest on new loans. And since the US keeps taking on new debts, it means that servicing the debt is becoming increasingly expensive. And we're not talking about small amounts. The annual interest on the US federal debt is already hundreds of billions of dollars. That's more than the military budget of most countries in the world. Just to pay off the cost of borrowing money.
And what is this mysterious debt rolling?
Brutally speaking — it's like having a loan, but instead of paying it off, you take a new one every month to pay off the previous one. Only you're the US, so everyone is happy to lend you money — at least for now. The US government issues new bonds to pay off old ones. And so on and so forth. This is what debt rolling is. A pure illusion of stability. As long as everything works — it's OK. But when interest rates rise and investors start to get scared, the cost of such "debt extension" becomes painful. And at some point, it may become... impossible.
Why does all this matter?
Because the US is not just any economy. It's the number one economy, the dollar is the world's reserve currency, and US bonds are treated as "risk-free assets". And when something starts to happen with all this, it's not just Americans who have a problem. It affects the whole world: from commodity prices, through currency exchange rates, to how much a loan costs in Poland or whether it's worth holding onto the zloty, euro, or maybe... Bitcoin.
And now imagine that the yield on US bonds suddenly rises sharply. The US government suddenly has to pay significantly higher interest to entice anyone to buy these papers. This means that a huge part of the budget goes not to roads, schools, or social assistance — but to servicing the debt. And the FED, the US central bank, can't just lower interest rates because then inflation will return. And suddenly we have a government in a bind. Literally.
And what then?
Investors start to get scared. They begin to flee from "paper assets". They buy gold. They buy commodities. More and more often... they buy Bitcoin. Because if even the US government can have a problem with debt, maybe it's time to rethink the whole system?
US Treasury bonds are the foundation of the global financial system. But if this foundation starts to crumble — due to rising yields and increasingly difficult debt rolling — the entire structure may begin to shake. And then the question is no longer: "is it worth buying a US bond?", but: "does the system we know need a reset?".
Do you know what strikes me sometimes when I listen to the news? All those lofty slogans: "the yield on US Treasury bonds has risen", "debt rolling is reaching new records", "investors are reacting to the FED's decisions". And so what? The average person just blinks and shrugs. Yet what happens in the US bond market can even affect... your daily shopping or how much a mortgage costs in Poland... But okay, step by step.
What are US Treasury bonds anyway?
They are simply papers that the US government sells to investors — in exchange for cash. It promises to return the borrowed money after a specified time, and in the meantime, it will pay interest. Sounds trivial? Because it's just a regular loan. Only it's taken on a gigantic scale, as the US public debt already exceeds 34 trillion dollars. Yes, trillions. And yet investors keep buying them because the US has a reputation for always paying back. The question is: how much longer?
Alright, but what is yield?
Yield is the percentage profit that an investor can achieve by holding a bond. If you buy a bond for 100 dollars and receive 5 dollars in interest each year, your yield is 5%. But if someone else buys the same bond for 90 dollars because the price has dropped, their percentage profit will be higher — over 5.5%. And this is where the fun begins. Because yield is not fixed. It changes every day. It's like a thermometer of market moods: it shows how investors feel about US debt.
Who benefits from high yields?
Definitely not the US government. Because higher yields mean one thing — the government has to pay higher interest on new loans. And since the US keeps taking on new debts, it means that servicing the debt is becoming increasingly expensive. And we're not talking about small amounts. The annual interest on the US federal debt is already hundreds of billions of dollars. That's more than the military budget of most countries in the world. Just to pay off the cost of borrowing money.
And what is this mysterious debt rolling?
Brutally speaking — it's like having a loan, but instead of paying it off, you take a new one every month to pay off the previous one. Only you're the US, so everyone is happy to lend you money — at least for now. The US government issues new bonds to pay off old ones. And so on and so forth. This is what debt rolling is. A pure illusion of stability. As long as everything works — it's OK. But when interest rates rise and investors start to get scared, the cost of such "debt extension" becomes painful. And at some point, it may become... impossible.
Why does all this matter?
Because the US is not just any economy. It's the number one economy, the dollar is the world's reserve currency, and US bonds are treated as "risk-free assets". And when something starts to happen with all this, it's not just Americans who have a problem. It affects the whole world: from commodity prices, through currency exchange rates, to how much a loan costs in Poland or whether it's worth holding onto the zloty, euro, or maybe... Bitcoin.
And now imagine that the yield on US bonds suddenly rises sharply. The US government suddenly has to pay significantly higher interest to entice anyone to buy these papers. This means that a huge part of the budget goes not to roads, schools, or social assistance — but to servicing the debt. And the FED, the US central bank, can't just lower interest rates because then inflation will return. And suddenly we have a government in a bind. Literally.
And what then?
Investors start to get scared. They begin to flee from "paper assets". They buy gold. They buy commodities. More and more often... they buy Bitcoin. Because if even the US government can have a problem with debt, maybe it's time to rethink the whole system?
US Treasury bonds are the foundation of the global financial system. But if this foundation starts to crumble — due to rising yields and increasingly difficult debt rolling — the entire structure may begin to shake. And then the question is no longer: "is it worth buying a US bond?", but: "does the system we know need a reset?".
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