Bond Market Bogeymen Make a Return Appearance

What a difference a few days can make in the bond market. Last week, traders were using phrases such as "melt up," "short squeeze" and "capitulation" to describe the rally in Treasuries that sent yields to their lows of the year without any real change in the usual fundamental economic underpinnings that drive interest rates. This week, the euphoria has been replaced by a sense of loathing.

At the heart of the reversal in sentiment is the worry that the two traditional foes of bond traders -- inflation and supply -- are about to make a reappearance. Thursday's consumer price index data only reinforced those notions, as the cost of living accelerated following a five-month-long period of dormancy.