Government bond yields rising everywhere...

Posted this as a comment on an Economist article:

http://www.economist.com/comment/779255#comment-779255

"I believe that the rise in yields is a powerful emergent outcome of several factors. The market has been unable to clearly distinguish between the expected monetary tightening cycles & fiscal problems of the G4. As a result, government bond yields have been correlated to an unusual degree since the Great Recession. An expansive monetary-fiscal policy mix by the US and China and confidence in global growth prospects has caused a glut of non-genuine investment demand in several commodities, including food, base metals, oil and precious metals. This has started feeding through to inflation everywhere, even in the “deflationary” G4 economies. A part of the rise in yields was also driven by a classic "buy rumour, sell fact" story post the November FOMC rate decision. Subsequently, the extension of the Bush tax cuts boosted US yields on both growth expectations and higher fiscal deficits. Which of the two the market is pricing in to a greater degree is yet to be known. The rise in yields has been greatly exaggerated by thin liquidity in December. With the extension of the tax cuts, the outlook for consumer spending and credit growth also improves. At the same time, US homeowners will suffer greatly if mortgage yields suffer a blowout. Both core and headline inflation in the US can head higher from here on, particularly if credit growth picks up and house prices stabilize due to increasing confidence. This, unfortunately, may not be accompanied by a corresponding decline in unemployment. I believe that the US and UK may have shifted to a higher NAIRU and hence will pose interesting policy challenges for the Fed & BOE. The UK has already demonstrated this with persistently high inflation over the past year or so. With fiscal and monetary measures totalling well over 3.5 trillion, whether its a debt sustainability issue or an improving growth outlook, US yields are set to continue the rise. And till the world learns to price G4 sovereign risks independent of each other, the others will continue to follow US yields."

Comments & criticism most welcome