A bond is a bit like an IOU that can be traded in the financial markets.
Governments generally spend more than they raise in tax so they borrow money to fill the gap, usually by selling bonds to investors.
As well as eventually paying back the value of the bond, governments pay interest at regular intervals so investors receive a stream of future payments.
UK government bonds – known as “gilts” – are normally considered very safe, with little risk the money will not be repaid. They are mainly bought by financial institutions, such as pension funds.
Interest rates – known as the yield – on government bonds have been going up since around August.
The yield on a 10-year bond has surged to its highest level since 2008, while the yield on a 30-year bond is at its highest since 1998, meaning it costs the government more to borrow over the long term.
The pound has also fallen in value against the dollar over the last few days. On Tuesday it was worth $1.25 but is currently trading at $1.23.
