What's Behind Soaring T-Bond Yields

Many market observers have been alarmed by the surge in long-term bond yields. This has also sparked a debate on Wall Street: Are the higher yields due to an emergent recovery or fears of higher inflation?

For now, I don't think it's either. More than higher bond yields, we're really seeing a closing of the gap between Treasury yields and corporate yields. In other word, investors are more willing to take on risk. To be even more precise, the level of risk-taking is backing off from its extremely scared level of about six months ago.

This chart shows the yield of the 30-year Treasury (red) along with an index of AAA bonds (blue).

Notice the closing of the gap between the two. Corporate yields are higher but the major change has come from Treasuries. This means that the price of risk is finally returning to normal.