His arguments are essentially that bond price drops are a reduction of the fear of DEFLATION and not necessarily a signal of high inflation. Additionally, to the degree that we see we are seeing is risk aversion levels drop (which is a another good thing!) and the safety premium that comes with Treasuries is reducing.
Evidence of this reduced premium can be seen looking at the VIX and in this this chart showing Treasuries vs corporates. Notice how the relative value of treasuries peaked during the worse of the uncertainty.
This flight to quality in bad times is normal and seeing it now ebb might well be a signal that the economy is returning to some semblance of normalcy and not a signal of higher inflation.
FT.com / Columnists / Martin Wolf - Rising government bond rates prove policy works:
"Is the US (and a number of other high-income countries) on the road to fiscal Armageddon? Are recent jumps in government bond rates proof that investors are worried about fiscal prospects? My answers to these questions are: No and No. This does not mean there is no reason for worry. It is rather that there are powerful arguments against fiscal retrenchment right now and strong reasons for welcoming recent moves in the bond markets."
"What has happened is a sudden return to normality: after some turmoil, the yield on conventional US government bonds closed at 3.5 per cent last week, while the yield on Tips fell to 1.9 per cent. So expected inflation went to a level in keeping with Federal Reserve objectives, at close to 1.6 per cent"
and still later:
...the fear of inflation....is essentially the question of how to exit from current extreme policies. People need to believe that the extraordinarily aggressive monetary and fiscal policies of today will be reversed. If they do not believe this, there could well be a big upsurge in inflationary expectations long before the world economy has recovered....The exceptional policies used to deal with extreme circumstances are working....policymakers are walking a tightrope: on one side are premature withdrawal and a return to deep recession; on the other side are soaring inflationary expectations and stagflation. It is irresponsible to insist either on immediate tightening or on persistently loose policies"
Thanks to RortyBomb at SeekingAlpha for pointing this article out
BTW does anyone know how to embed a Yahoo Finance graph, I can link to it, but not embed it. Any advice would be appreciated. :) thanks..