Gilt yields shot up last Thursday, with 30-year debt pushing above 6 per cent, the highest since 1998 and the 10-year rising above 5.5 per cent, a level last seen in 2007.
Yields came back a bit on Friday, as the panic eased a little, but the bond vigilantes are back on the attack and I have not found any commentator who thinks this is the top of the cycle.
My guess is that the 10-year rate, the most important for public finances, will certainly go above 6 per cent and I could see it reaching 7 per cent in the not-too-distant future.
If you are a Government intending to borrow industrial quantities of money, this is terrifying.
If Andy Burnham has not realised his spending plans will be blown out of the water, he has been reading the wrong newspapers.
But actually I feel a huge sense of relief that savers will no longer be cheated by ever-climbing inflation. The markets are doing a profoundly important social service.
If Andy Burnham has not realised his spending plans will be blown out of the water, he has been reading the wrong newspapers
They are forcing discipline on all borrowers – governments of course, but also corporations that are spraying money around on projects that will never bring a positive return.
And they are forcing central banks to take inflation seriously instead of pretending that everything will be fine if they wait a bit longer for price rises to come down of their own accord.
What’s at stake is the credibility of fiat money – pounds, dollars, euros and so on.
People are losing trust in it. That’s why they want to put their money into anything that seems real. That doesn’t mean these investments have been wonderful, indeed in some cases rather the reverse.
Bitcoin has recovered, but at $86,000 it is still down more than a quarter on the year to date.
Gold peaked at $5,600 an ounce in January but is now below $4,200 an ounce.
Oil has for obvious reasons shot up in price but is still cheaper than at its peak in 2008.
But it’s impossible to trust money if it will lose its value year after year, as has happened all our lifetimes.
Start with one number. Annual inflation since 1970, the year the Prime Minister was born, has been 4.81 per cent. According to the excellent Bank of England inflation calculator you would need £142.40 now to buy what £10 would have got you then.
If you had bought a 50-year gilt that year and held it to maturity in 2020 you would have lost around 90 per cent of its purchasing power.
You would have had the interest but would be way down on the investment. If, on the other hand, you had bought a house you would have seen a real rise of seven or eight times what you paid.
So ask yourself: why should anyone lend long-term to this Government now?
The UK is not alone. The US has a similar credibility problem, with a budget deficit and a debt-to-GDP ratio even higher than ours. It pays slightly less than we do to borrow for 10 years, but the gap has shrunk from 0.5 per cent to around 0.25 per cent.
France is in a mess, paying nearly 5 per cent for 10 years, 1.5 per cent higher than Germany, the widest premium since the eurozone crisis of 2011.
It is proposing to reduce its budget deficit by around €50bn by cutting spending and increasing taxes, but that does not seem to have calmed markets. Investors trust Germany, they don’t trust France.
And judging by the rates charged to the US and UK, they don’t trust either of us much too.
So why do I feel relief?
It is that the sooner that governments are forced to curb deficits and that central banks are forced to increase interest rates, the less likely it is that inflation will burst out of control.
The less likely it is that we will have the social unrest of the 1970s, where workers were pitted against employers as they tried to claw back in higher wages what they had lost in inflation.
The less likely it is that interest rates will go to double digits, as they did for most of the 1970s and all the 1980s.
And the less likely it is that taxpayers will continue to be cheated by having savings whittled away by governments that won’t control their spending.