Michael Mackenzie says in the FT that the reason that bond yields rose last week is that investors have been scared by the Fed’s apparent desire for higher inflation. I think this is not a good explanation, for the following reasons.
- 10-year Treasury yields have jumped about 40bps, but the 10-year TIPS breakeven (a market measure of inflation expectations) did not jump nearly so much.
- German bund yields also rose last week, even though the ECB is hawkish on inflation.
- Last week’s scare was deflationary — it was all about Chinese tightening and a slow-motion run on the Irish banking system.