IT IS easy to understand why bond markets are vulnerable to inflation, since the value of most bonds is fixed in nominal terms. But the remarkable thing about the inflation scare is that it has left them virtually unscathed.

The yield on America's ten-year Treasury bond finished June where it started in January, at around 4%. Perversely, bond markets have held up so well, it seems, because investors have perceived them as being low-risk. Instead, they have taken out their fears on the stockmarket.