The government has to borrow that money from somebody

During and after the Great Recession, borrowing was easy for the United States government.

Its bonds were considered one of the safest places in the world to stash your money. They were exactly what organizations with cash to safeguard — jittery governments, insurance companies, retirees, hedge funds, banks, mutual funds, pension funds — were looking for.

And because these groups were desperate for safety, they were generally willing to accept low rates of return on their investment. That’s why interest rates were low.

It wasn’t only savers who were buying government bonds. So was the Federal Reserve, as part of its effort to resuscitate the moribund economy. The Fed’s bond buying also helped keep interest rates low.

Now all that is changing.

Because the economy has largely recovered, the Fed is reducing the amount of government bonds that it holds. Corporations, banks and households are spending their money or investing it in riskier assets — with bigger potential payoffs — rather than stockpiling it. And, amid optimism about the economy’s prospects, more consumers and institutions are looking to borrow money themselves, rather than park their cash in safe havens like government bonds.

So the government has fewer places from which to borrow money. In essence, the government is competing with individuals and companies to borrow money from a limited source of lenders.

As a result, interest rates rise on government debt

Intensifying competition for investment funds is good news for savers and other lenders who can demand higher interest rates.

But it’s bad news for borrowers who have to pay those higher rates.

The process is now playing out in some normally sleepy corners of the world’s financial markets, such as those for short-term debt, known as the money markets.