No sooner did I write a piece about the bond market and how reduced liquidity/increased volatility was keeping me up at night, so to speak, than the bond market takes center stage this week. Don’t look now fans, but the yield on the 10-year U.S. T-Note has spiked over the last three days to the highest level of the year – and the bottom line is that the rate of ascent has some folks worried.

10-Year U.S. T-Note Yield – Weekly

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I know what you’re thinking. Why are yields on U.S. bonds spiking higher when the U.S. economic data continues to come in on the punk side? Why are rates rising when the consensus is that the Fed is NOT going to hike rates in June, maybe not in September, and perhaps not at all in 2015? And why are yields going up when there is still the potential for a “Grexit” to occur at any moment?

The answer appears to lay not with the U.S. economic data but rather the happenings across the pond. Yep, that’s right folks, if you want to understand the moves in the U.S. markets these days, you have to understand what is happening in Europe, or China, or… In short, THIS is what happens in today’s globally interconnected markets where computers drive trading around the globe 24/7 at the speed of light.

Here’s the deal. The price action in the German Bund continues to get most of the attention right now as yields on the German 10-year have traded as high as 0.99% this morning and are currently trading at 0.94%. To put this into perspective, it wasn’t long ago that these very same yields were closing in on the zero bound and the current levels are the highest seen since October 2014.

Although this may not sound like a big deal, consider that the sell-off in German debt on Tuesday and Wednesday has been the biggest two-day drop seen since 1998. Yikes.

According to analysts, the catalyst for Tuesday’s week’s spike in German yields was the uptick in Eurozone inflation (the rate moved up to 0.3% on a year-over-year basis). Then on Wednesday, ECB President Draghi talked “tough love” to bond investors, which was not well received.

Although Draghi did say that the QE program is going well and there is no reason to talk about cutting it short, “Super Mario” also said that things in the bond market could get testy in the near-term. Draghi made it clear that the ECB would not stand in the way of further bond selling. He added that the market should get used to more volatility and this would not change the ECB’s course on implementing its QE plan.

In other words, Draghi was quite a bit more hawkish than had been anticipated. Draghi also effectively said that there is not going to be any “ECB Put” available to bond traders and that the ECB wasn’t going to be pushed into taking further action by a little selling in the bond pits.

So there you have it. Tanking prices in the German Bund mean a corresponding fall in the prices of U.S. bond market. And with so many investors having piled into both securities lately expecting global QE to cause prices to rise, well, the bottom line is we may be seeing a bit of a reversal in this trade. And in short, if the big bond traders of the world all start to go the same direction at the same time – or worse yet, are all forced to make the same trade – then we could be seeing the start of a “yield event” in the bond market.

To be sure, the current spike in yields is only 3 days old. And it is true that both the ECB and the BOJ are continuing to print substantial new cash via their respective QE programs. As such, it is probably not a good idea to panic about rising yields at this point. However, the action in the bond market remains something that investors of all shapes and sizes need to pay attention to in the coming days, weeks, and months.