Bond yields are trending up. This is even true for inflation-protected bonds. The 5-year TIPS offered a -0.20% yield yesterday. Still a negative yield, but less negative than it was a few years ago. Yields could be rising because markets expect future rate hikes, the Fed is buying fewer TIPS, or rates are ending their 40-year bull run. In some ways it is surprising that TIPS yields are going up, after all this is a very risky inflationary environment and TIPS are one of few securities that offer any protection. You'd think there would be more demand.

But it seems bond investors are not too worried about inflation. The 5-year treasury yield, that offers no inflation protection, is up to 3%. This suggests markets, or bond investors, think inflation will return to normal eventually. The difference between the nominal and real yields reflects markets' inflation expectation and a risk premium that reflects how risky investors think inflation will be going forward. Based on this market, they don't seem too worried. Maybe they should be.

Source: FRED

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.