The growth rate of nominal GDP in the US has fallen to 2.4pc, the lowest level outside recession since the Second World War.

It has been sliding relentlessly for almost two years, a warning signal that underlying deflationary forces may be tightening their grip on the US economy.

Given this extraordinary backdrop, the violent spike in US and global bonds yields over the last four trading days is extremely odd. It is rare for AAA-rated safe-haven debt to fall out of favour at the same time as stock markets, and few explanations on offer make sense.

We can all agree that oxygen is thinning as we enter the final phase of the economic cycle after 86 months of expansion. The MSCI world index of global equities has risen to a forward price-to-earnings ratio of 17, significantly higher than on the cusp of the Lehman crisis.

"We think that too much complacency has crept in," says Mislav Matejka, equity strategist for JP Morgan.

"After seven years of having a structural overweight stance on global equities, we believe the regime has fundamentally changed. We think that one should not be buying the dips any more, but use any rallies as selling opportunities," he said.

The correlation between bonds and equities has reached unprecedented levels, and that has the coiled the spring. The slightest rise in yields now has a potent magnifying effect across the spectrum of assets. Hence the angst over what is happening to US Treasuries.

Yields on 10-year Treasuries - the benchmark borrowing cost for international finance - have jumped 19 basis points to 1.72pc since the middle of last week. The amount of global government debt trading at rates below zero has suddenly fallen from $10 trillion to $8.3 trillion, with parallel effects for corporate bonds.

You would have thought that inflation was picking up in the US and that the Fed was about to slam on the brakes, but that is not the case. The markets are pricing in a mere 15pc chance of a rate rise next week, and the figure has been falling. 

If anything, the US inflation scare has subsided. There were grounds for worrying earlier this year that Fed would have to act. In February, core CPI inflation was steaming ahead at a rate of 2.9pc on a three-month annualized basis. This has since dropped back to 1.8pc. Other core measures are lower.

David Fuller's view

The rise in 10-year government bond yields is definitely a warning short across the bows for investors (see also my review of these markets on Tuesday 13^th September). 

However, while I would not minimise the risks, there are some reasons for the sharp rise in government bond yields, which subscribers may wish to consider.

1. Some investors will not accept the masochism of negative interest rates, unless they really think that all developed economies are following Japan’s disinflationary and deflationary cycle which commenced in the early 1990s, following the bursting of their massive property and stock market bubbles. 

2. The search for yield is causing some bond investors to switch from fixed interest to the generally more risky and certainly more volatile stock markets.

3. Increasingly, they also hear central banks talk about ending QE, which came close to creating an almost risk-free environment for bond investors while it persisted. 

4. Momentum traders in government bond markets have recently seen sharp upward breaks in the previously consistent downward trends for bond yields, prompting at least some of them to sell long positions. 

5. Lastly, speculators with large short positions in bond markets are not necessarily issuing public warnings for altruistic reasons.  

Here is a PDF of AE-P's article.