Sorry, You're Still Wrong About "Bond Vigilantes"

Update: One more thing about the Mauldin post on Bond Vigilantes… if yields are rising everywhere, as he points out, then it does not stand to reason that the deficit-implications of the tax deal or QE2 is a big factor. An improved global growth outlook seems far more robust, no?

Original post: John Mauldin — who has mostly been negative for some time — tells Ben Bernanke to “get a clue” in his latest piece slamming QE and warning of so-called Bond Vigilantes.

But in the US, bond vigilantes are a myth, and the rise in yields is a reflection of increased optimism about the economy, and the lessened demand for risk-free assets.

We’ve been on this kick for a long time, so just a little more perspective is called for here.

While it’s true that 10-year yields have surged, the rally in inflation-indexed securities (TIPS, the blue line) has been far more muted, which, to some extent, means Bernanke’s goal of keeping rates artificially low is being met. (chart via @obsoletedogma)

chart

And beyond that, once again, here’s the long-term look at the 10-year yield. Does the bounce in the 10-year at the end seriously look like something to be terrified of?

chart

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