Don't Freak Out About The Bond Vigilantes Just Yet

The selloff in the US Treasury bond market continued today. The 30-year yield hit a high of 5.19%, its highest level since July 2007. The 10-year yield surged to 4.69%, its highest since January 2025 (chart). Just as unsettling as these levels is how quickly yields have risen over the past few days.

We think that happened in response to last week's hotter-than-expected April PPI as well as the latest batch of stronger-than-expected economic indicators. That combination cannot be described as “stagflation.” In fact, while some economists have warned that yields are in the "Danger Zone," we think they remain in the "Normal Zone," reflecting a resilient economy with a short-term inflation problem. The Fed should respond to the latter by raising the federal funds rate within the next two months.