Bond Outlook June 13th

Various reasons have been put forward to explain the sharp rise in yields at longer maturities. One is the fear of inflation, which echoes the worries of Bernanke. Another is a reduction in liquidity, blamed on growth of the world economy sucking up funds for working capital at an increasing rate. This is an argument we have some difficulty absorbing; it is largely based on the observation that TIPS are not suggesting much future inflation.