What I Learned About the Bond Market (And Why It Matters More Than Stocks)
I’ve always heard people talk about the stock market, crypto, or property as the big players in finance – but after watching a detailed YouTube video about the bond market, my whole perspective shifted and finally I understand why bond market more important than stocks.
The truth is, the bond market quietly controls almost everything – your mortgage rate, job stability, investments, inflation, and even the crypto market. It’s not as flashy as stocks, but it’s easily one of the most powerful forces in the global economy.
So, What Exactly Is a Bond?
Here’s how I now understand it:
A bond is basically a loan – but instead of borrowing from a bank, companies and governments borrow from investors like us.
When a government or corporation issues a bond, they’re promising to repay the principal (the borrowed amount) on a set date (called maturity) and to pay regular interest along the way (called a coupon).
In short:
- Principal = what’s borrowed
- Coupon = the interest payment
- Maturity = when the money is due
- Yield = the investor’s actual return
The interesting part is that bond prices fluctuate daily, even though the coupon stays the same. That means when bond prices fall, yields rise, and when bond prices rise, yields fall – something I never fully grasped until now.
Why Governments Borrow and Why It Never Stops
Governments spend massive amounts on infrastructure, healthcare, education, and defense. But here’s the reality: they spend more than they earn in taxes.
That shortfall is called the budget deficit, and to cover it, governments issue bonds — essentially borrowing from the public.
From the video, as of 2025:
- The UK’s national debt is around £2.7 trillion
- The U.S. national debt is roughly $36.7 trillion
Investors buy these bonds because they’re considered safe – particularly U.S. Treasuries, which are backed by the U.S. government itself.
These bonds are sold in primary markets through Treasury auctions and then traded globally in secondary markets, where investors constantly react to changes in interest rates, inflation, and economic forecasts.
What I Learned About Yields (and Why They Matter So Much)
Bond yields are more than just an investor’s return – they’re a measure of how expensive borrowing is across the economy.
When yields go up, interest rates rise across the board:
- Governments pay more on debt.
- Businesses face higher borrowing costs.
- Ordinary people see mortgage and loan rates climb.
Right now, the U.S. government spends about $3 billion a day just on interest payments. And because so much of that debt is short-term (6 to18 months), it constantly gets rolled over – meaning they borrow new money to pay off old debt.
That endless cycle keeps the debt mountain growing, and the higher the yields, the heavier the burden becomes.
How the Bond Market Moves the Stock Market
Here’s a big insight that really stuck with me: when bond yields rise, stock prices usually fall.
Why?
If you can earn a guaranteed 5% return from safe government bonds, why take the risk of investing in volatile stocks?
That 5% is what’s called the risk-free rate, and the difference between that and expected stock returns is the equity risk premium (ERP). When yields rise, the ERP shrinks – making stocks less attractive.
So when you hear news about rising bond yields spooking the markets – that’s exactly why.
Corporate Bonds: Reading Market Fear
Another key takeaway was understanding corporate bonds versus government bonds.
- Government bonds are safe (low chance of default).
- Corporate bonds are riskier because companies can fail.
When investors fear a slowdown or crisis, they demand higher yields from corporate bonds. The gap between corporate and government bond yields – the high-yield spread – widens during times of uncertainty.
So, watching that spread is like checking the market’s emotional state – calm or panicked.
Why This Matters to Everyone (Even Non-Investors)
Even if you never buy a bond, this market affects you every single day:
- Loan and mortgage rates move with bond yields.
- Investment returns are tied to interest rate expectations.
- Government spending depends on how cheaply it can borrow.
- Inflation and economic growth are shaped by bond market sentiment.
The bond market doesn’t just reflect the economy – it drives it.
My Final Takeaway
Before watching that video, I thought the stock market was the main barometer of the economy. Now, I see that the bond market is the backbone of everything.
When yields rise, borrowing gets harder, growth slows, and investors seek safety.
When yields fall, money becomes cheaper, confidence rises, and risk-taking returns.
It’s a reminder that if you want to understand where the economy is heading — don’t just watch stocks or crypto. Watch the bonds. You can also read more about bonds from Investopedia.
My next step on the journey to becoming a Master Trader is to gain deeper knowledge of macro, industry, and company insights from Beyond Insights. I attended their Versatile Trader Package (VTP) before to gain knowledge on growth investing, swing and trend trading for short to medium term trading. Kathlyn Toh and the other trainers/coaches are excellent and wonderful people. It is very important to gain the correct knowledge and practice instead of jumping into the market blindly. You can join their free 3-hour webinar to find out more.
