Terrified by irresponsible fiscal and monetary policies, the bond market vigilantes are out in force. So rose the cry, as rates on government bonds jumped last week. Alas for the panic-mongers, this glib story is nonsense. What is happening is a move towards normalisation. That is excellent news. Policy is working. That does not mean it could not be improved. But what is astonishing is not how high nominal and real interest rates have become, but how low they remain. They are likely to rise substantially if and when less abnormal conditions arrive.

What has happened? Between November 30 and December 13 2010, the yield on 10-year US government bonds jumped by 0.49 percentage points. Corresponding jumps in German and UK bonds were 0.30 and 0.34 percentage points respectively. The rises between November 4 and December 13 were bigger still, at 0.80, 0.46 and 0.61 percentage points for the US, Germany and the UK.

Are these jumps significant? No. In the case of the US, rates are back where they were in June 2010, before the marked fall in optimism about economic prospects revealed by the decline in the consensus forecast for growth in 2011, from 3.1 per cent in June to 2.4 per cent in September. Moreover, on December 13 yields on 10-year bonds were still only 3.28 per cent in the US, 2.91 per cent in Germany and 3.68 per cent in the UK. Yet between January 2003 and July 2007, on the eve of the crisis, yields on US 10-year bonds averaged 4.4 per cent. Rates at least that high represent normality and, with luck, that is where we are now heading, as the Federal Reserve and other central banks have long been hoping.