Explaining last week's sell off in US Treasury Bonds

From CityWire:

There is more than one explanation for why these investors might be nervous about the future value of their bonds.

The optimistic view is that investors sold their bonds because they thought that expensive attempts to kick-start the economy would work. These investors were selling their bonds in order to make more money elsewhere as the recovery gathers steam.

The pessimistic view is that investors were sold their bonds because they thought that expensive attempts to kick-start the economy would fail and that the US would be saddled with an even more massive debt than it had before. Although a default by the US is not seen as likely, the size of the debt could hobble growth. Meanwhile the cash pumped into the system from could result in inflation that would eat away at the value of the income stream and the loan itself.

Which yet again illustrates that experts aren't right more often than amateurs, they just have a more sophisticated explanation for why they were wrong.

So here's my third (and equally plausible) explanation: it is quite simply the case that those naughty speculators had pushed bond prices to above and hence interest rates to below anything rational (2.5% fixed for ten year bonds) and then the head of the pack said "All right chaps, we've overdone it now, this is silly. Nobody wants to invest for less than than 3.5%, what with the risks of inflation and all, so let's start selling again."

Here's a chart from the excellent Fixedincomeinvestor.co.uk website: