There’s a lot of scary talk about a bear market in bonds, for example from bond guru Bill Gross, who noted that the 5-year US Treasury yield has reached the highest level since April 2011. A closer look at what is driving bond yields shows that only one thing has changed, namely the price of oil.

The inflation component in Treasury yields has risen by about 0.3% since October in lockstep with the oil price (that’s the difference between the yield on an ordinary Treasury bond and the yield of a Treasury bond indexed to the Consumer Price Index). The rise in the oil price accounts for all the increase in so-called breakeven inflation (the inflation rate at which investors in ordinary Treasuries and inflation-index Treasuries get the same total return).