From today's Financial Review:Bond markets are flashing red,...

From today's Financial Review:

Bond markets are flashing red, triggering a sharp rise in yields, on growing fears that inflation could come roaring back and catch central banks by surprise, escalating to rapid rises in interest rates that the world is ill-prepared for.Yields jumped on Wednesday, with the Australian government 10-year bond yield climbing almost 11 basis points , or 8 per cent, to almost 1.43 per cent. The spike followed a rally in the US Treasury market where yields hit 1.31 per cent. New Zealand 10-year yields are at 1.5 per cent, German bunds are at -0.35 per cent and UK gilts reached 0.6 per cent.“The sell-off was driven by higher inflation expectations in the US,” ANZ’s head of Australian economics David Plank said. “The market has decided that deflationary risks have subsided and markets are increasingly confident about the recovery and fiscal dynamics.” Bond yields trade inversely to prices.
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Investors could genuinely start to worry if real yields pick up along with market inflation expectations, Mr Plank said. “Real yields are essentially unchanged but if we start to see a rise in real yields, that potentially has greater negative implications,” he said.