Few forces in the world are strong enough to make politicians snap to attention quite like the bond market. It also helps dictate how much ordinary people pay on their mortgages and car loans, as well as how much they earn from their savings accounts and 401(k) plans.

This week, rising bond yields forced the U.S. Treasury Department into an unusual intervention and raised the specter of higher borrowing costs putting the brakes on consumer spending, the lifeblood of the economy. The turbulence also sparked concerns that investors might finally be thinking twice about financing a seemingly endless flow of government borrowing.

At the heart of the turmoil is a structural shift: Treasurys are facing more competition from higher-yielding bonds overseas than in recent decades. Here is a look at what is going on and how it affects everyone.

How the bond market works

When governments and big companies borrow money, they do not 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 are called bonds. IOUs the U.S. government will repay more quickly are more often called bills or notes.

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

Growing competition from overseas

The world's biggest and most important bond market is the one for IOUs from the U.S. government, known as Treasurys. Its total size was $31.5 trillion as of July, according to the Securities Industry and Financial Markets Association. Treasurys have also long served as the world's benchmark safe asset, held by central banks, commercial banks and money managers around the world as reserves and as collateral backing other trades.

Yet Treasurys are now facing more competition from higher-yielding bonds abroad. After years of near-zero interest rates — the Bank of Japan held its policy rate below zero from 2016 until 2024 — even 30-year Japanese government bonds are paying more than 4%. Yields on U.K. bonds have reached 5.81%, and German bonds are paying 3.76%, versus 5.27% for a comparable U.S. bond. The comparisons are not exactly apples to apples, because returns on foreign bonds also move with currency swings, and investors who hedge that exchange-rate risk pay to do so, which can eat into the extra yield. Even so, it is a big reason U.S. rates have been drifting higher.

Ira Jersey, chief U.S. interest rate strategist at Bloomberg Intelligence, said large global investors such as pension funds and life insurers — the kinds of institutions with obligations stretching decades into the future — used to have little choice but to put money in Treasurys because most other overseas bonds paid so little interest.

"Now the U.S. 30-year yield has to compete with all these other sovereign bonds," Jersey said. "The U.S. is not the only game in town anymore."

Mortgage rates and the 10-year yield

The easiest example of the impact is mortgage rates, which tend to follow the path of yields for Treasurys that will be repaid in 10 years.

The 10-year Treasury yield is the centerpiece of the bond market, and it shot higher through the summer after the war with Iran sent oil prices and inflation worries upward, adding to longstanding concerns about the size of the U.S. government's debt.

That in turn made mortgages more expensive for people looking to buy a house. The average 30-year fixed-rate mortgage is near its highest level in a year, discouraging people already worried that the price of homeownership may be too high.

Treasury Secretary Scott Bessent's announcement Wednesday that the government would double its buybacks of longer-term bonds — a tool the Treasury had not used regularly in more than two decades before reviving it in 2023 — was intended to bring down the 10-year Treasury yield and lower mortgages. Yet the move brought only temporary relief, with the 10-year yield rising back to 4.74% Friday, matching its highest point in more than a year.

Consumers step back, AI investment steps up

Thierry Wizman, global rates strategist at Macquarie Group, said higher mortgage rates will likely discourage some consumers from buying homes. At the same time, higher yields generally should draw more investment into bonds issued by large tech firms investing in AI infrastructure.

"The private sector wants to have the AI revolution," Wizman said. "Who's going to take a step back? It's going to be the consumer. And higher yields are going to do that a little bit."

Other parts of the market, including where the Federal Reserve sets its interest rate for very short-term overnight loans, affect rates for everything from credit cards to savings accounts to auto loans.

Generally, higher yields and rates benefit savers, who earn 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 thinking: why should anyone pay high prices for riskier investments when U.S. Treasurys, which are supposed to be safer, are paying more than before?

A record debt load

Washington continues to spend far more than it brings in through revenue, so it has to borrow money to cover the gap. That has sent total debt over $40 trillion, a staggering record, and the number keeps climbing by the day.

When yields are rising, the U.S. government has to pay higher interest rates to entice buyers for its bonds when it auctions off Treasurys. Those auctions, along with the quarterly updates in which the Treasury lays out how much it plans to borrow, are among the most closely watched tests of whether global demand for U.S. debt is holding up. The federal government has already paid $931 billion in interest on its debt through the first 10 months of its fiscal year, which ends in September. That is more than it spent on health, national defense or veterans benefits, and is just behind Social Security and Medicare.

It is 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 country is on an unsustainable path with how much it spends versus what it brings in. Everything from tax cuts to increased military budgets adds to the deficit.

The unknown has always been when — or if — a tipping point would arrive that turns worries about the U.S. government's debt into a panic. That would cause investors to quickly dump their Treasurys, sending yields surging. And while yields have climbed this summer, they have not done so at a pace to suggest a tipping point is here.

A worldwide climb in yields

The rise in government bond yields has also been worldwide. It is not just Washington feeling pressure, but also bond markets in Japan, France, Germany and elsewhere.

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

This story was originally featured on Fortune.com.