My super simplistic view on the failing Bond Market

1) Government

- needs to borrow $1,000

- offers a bond at 5%

- will offer 5% interest and return your money after 5 years

- the deal: you will get $1250 ($1000 + $250)

2) Bond Holder A

- accepts deal but…

- later thinks government will default on the debt or…

- can earn more than $1250 elsewhere. So…

- cuts losses and sells bond for $800 to Bond Holder B

3) Bond Holder B

- has a new deal: $250 on $800 = 6.25%

4) Government

- needs to borrow another $1,000 but…

- must match the market expectation of 6.25% which…

- convinces more bond holders that the government will default.

5) Rinse and repeat.

Ok-ish?