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Revenge of the bond vigilantes?

March 14, 2012: 3:52 PM ET

The above chart may be setting of some alarm bells at the Federal Reserve.

The Fed doesn't want to raise short-term rates for another two years. But it has also tried to downplay hopes that it will step in and buy more bonds to keep longer-term rates low. QE3? Operation Twist 2? Sterilized bond purchases? Call it whatever you want. It's still stimulus. And while the Fed would probably prefer to not intervene again, the bond market may be now trying to force the central bank's hand.

The yield on the 10-Year Treasury is getting close to 2.3% -- its highest level since late October. If rates keep heading higher -- which is possible now that investors seem hell bent (for leather?) on bidding stocks up again in a massive risk-on trade -- Ben Bernanke may have no choice but to signal that the Fed may not be done buying bonds just yet. The 10-year was yielding below 2% only a few days ago. A nearly 30 basis point move in the usually sleepy world of fixed income is extremely dramatic.

This should be a fun tug of war to watch. Time to pull harder, Ben?

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About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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