Higher yields for government bonds — which are the least risky loans — basically mean even higher interest rates for common people and businesses. (Express photo by Bhupendra Rana)It is becoming increasingly costly for governments across the world to borrow money. In many cases, the interest rates that lenders are charging governments are reaching their highest levels since the global financial crisis of 2008.What’s more, this upward shift in the interest rates demanded of various governments has been quite sharp, which is a problem all by itself, regardless of the level of interest rates. Sharply rising borrowing costs for governments imply that borrowing costs for average consumers will also rise, possibly by a greater degree. Government bonds.Why do governments borrow money?In most countries, governments struggle to meet their expenditures just from taxation and other revenue sources. As such, governments have to borrow money to meet the gap.This demand is typically higher in developing countries and lower in developed countries, simply because developed countries’ governments are more capable and efficient at raising tax revenues. Poorer countries don’t have enough people in the well-off bracket to tax.Repeated crises have meant that even developed countries have struggled to grow fast enough to meet their expenses, thus resorting to higher levels of borrowing — not just in absolute amounts but also as a percentage of their GDP (or size of the economy).How do governments borrow money?In any economy, the government is the least risky borrower because it is least likely to fail in paying back. It is, after all, the government. In a crisis, it can even resort to printing money — a facility not available to businesses or households.Also from this author | ExplainSpeaking: To defend, or not to defend (the rupee), that is the questionHowever, governments borrow in a slightly different way. They float a bond — differently referred to as Treasurys in the US, Gilts in the UK, Bunds in Germany, G-Secs or government securities in India, and JGBs in Japan — which is essentially like an “I owe you” statement.Story continues below this adIt states that the government borrows a particular sum (say $100) for a particular period (say 10 years) and promises to pay a given return or coupon at the end of each year (say $5) apart from paying back the principal at the end of 10 years. Unlike the annual interest rate (expressed in percentage) for home, car or factory loans, government bonds provide a predetermined exact amount. If all goes well, the annual interest rate (or yield) for this example will be 5%.But imagine a scenario where the government decides to launch a war during the year and, as a result, inflation starts rising and the government’s demand for money also rises, while the economic prospects of the country decline. The government may be forced to borrow more money, but investors and lenders would now demand a higher rate of return because they are wary of the increased risks. The government would have to promise a higher coupon, say of $10, on the new bonds.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeThis will, in turn, make the old bonds (with an annual coupon return of $5) appear sub-optimal. Holders will try to sell them, often at prices lower than $100. How much lower? Anyone buying the old bond must have a yield or expected return of 10% from them, and as such, the old bond prices will have to fall to $50 so that they can be sold in the markets.Essentially, this is what is happening around the world: government bond yields are rising, and rising sharply. It must be noted that countries borrow and refinance in trillions of dollars, as such, yield movements are tracked upto three decimal places.What does it mean for you?Story continues below this adHigher yields for government bonds — which are the least risky loans — basically mean even higher interest rates for common people and businesses.Higher yields also mean that governments will have to spend even more of their annual budgets towards paying back annual interest on bonds. That, in turn, can only happen either by spending cuts in other areas such as welfare schemes or defence or by higher taxation. In sum, a bond sell-off and rising yields is not good news.Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. 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