Noteworthy article: "How the bond market vigilantes work"

Here is an excellent article from economist Scott Grannis entitled "How the bond market vigilantes work." We recommend all investors interested in understanding the current situation with the bond market and QE2 read it carefully.

We have been concerned about the inevitable snap upward in bond yields (and corresponding drop in bond prices) for some time, and have sounded cautionary notes about the recent flood of investment dollars into bonds, in posts such as this one and this one.

The chart above shows that there has been quite a bull market in bonds for the past year (yield line trending downward) but that may have ended quite decisively in the past couple of weeks.

Scott Grannis explains exactly what is going on, and why yields will likely continue to trend higher in the months ahead.

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