What the heck is going on with the bond market?

If you read the financial press, you could be forgiven for thinking something super crazy was happening in the bond market last week.

It's "taper tantrum, the sequel" sayeth Bloomberg. "Is the bond bubble bursting?" asked the Wall Street Journal. CNBC is insisting "everyone needs to pay attention to the bond market."

So what's going on? Well, yields, particular long-term ones, on the bonds for some major economies — like the U.S., Germany, and Japan — twitched upward last week. And I do mean twitched.

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Japan saw its 10-year bonds rise about 0.2 percentage points since July. Its 30-year bonds rose a whole 0.5 percentage points. For the U.S., it was 0.2 percentage points and 0.3 percentage points, respectively. In Germany, it was about 0.25 percentage points and 0.28 percentage points. When The Economist wrote that "German 10-year yields have 'soared,'" it dryly put "soared" in scare quotes.

So is this a big deal? Let's step back for a moment and put this into context.

For a quick tutorial, a bond is just a chunk of debt that you can buy on the financial markets. The yield on a bond is the return you get for owning it, which is usually some combination of the interest rate it pays plus what you'd make by selling it at a given moment. Interest rates throughout the economy are heavily influenced by the yields on U.S. Treasury bonds, and the Federal Reserve moves interest rates up and down largely by buying and selling those Treasuries. So for our purposes the yield on government debt and the interest rate it pays are fairly synonymous.

The yields on American, German, and Japanese bonds have all been falling continuously for decades. Inflation has been falling over the same time period, and recoveries have been getting more and more lackluster. At the same time, the stock market has steadily risen, albeit with the bubbles and dips of 2001 and 2008 and so forth. And corporate profits remain near record highs.

What does it all add up to? Wealthy savers and investors have an enormous amount of money to play with, and they're essentially using the financial markets as a safe. That's not because there's fundamentally attractive and productive economic activity going on to invest in. Quite the opposite. The economy is still pretty bad, so workers are struggling with low pay, few good jobs, and a general lack of bargaining power. Which allows the people at the top of the economy to claim an outsized share of the wealth. Hence the rising corporate profits, the falling labor share of national income, etc.

In fact, the long fall of bond yields in America, Japan, Germany, and elsewhere is the mirror reflection of all this. If productive investment opportunities were actually sucking money out of the financial market, those yields and interest rates would rise — as in, meaningfully rise, not some measly 0.03 percent — because it would be harder to find buyers for those countries' debt. But it's not harder — it's easier than ever. More money than ever is ready and willing to park itself in the safe harbor of government debt.

On the face of it, investors and the financial markets seem to be doing great, what with all the extra dough they've got. But if your job is to get the best return on that money, then things aren't so hot, because returns are all sort of the same level of "meh." The Economist aptly termed this state of affairs "stagfusion."

And under "stagfusion," lots of money will suddenly rush in and out of the markets for different bonds and securities, based on the slightest twitch of a central bank, simply because investors are looking for any deal at all.

The Bank of Japan has been getting lackluster results from its attempts at stimulus, so it'll decide whether to ease off this Wednesday, Sept. 21. That happens to be the same day the U.S. Federal Reserve makes its next call about where to take interest rates next. The Fed will most likely do nothing. But even if they do hike, it will be by a measly 0.25 percentage points.

As for the European Central Bank, it may or may not slow down its own quantitative easing efforts. But as observers note, the change will be about "increments, not direction."

In short, all the central banks are trying to decide between tweaks and doing nothing at all. Hardly the stuff of drama.

But "professional investors tend to focus on flows of money rather than fundamentals, as the great British economist John Maynard Keynes lamented 80 years ago," James Mackintosh wrote in The Wall Street Journal. Right now, the fundamentals are terrible: The long-term fall in bond yields suggests a collective expectation of a world where global economic growth simply never picks up and inflation never rises. Faced with that depressing landscape, investors are obsessing over the slightest twitch in monetary policy.

“Nobody has been buying on fundamentals, but on technicals,” Mark Dowding, a top officer at BlueBay Asset Management, told the Journal. “And the dominant technical has been central banks being massive buyers of assets.”

Mackintosh and lots of other observers seem to think the long-term outlook for growth and inflation is bad, but can't possibly be that bad. Surely if the central banks decide to to stop stimulating, things will start changing. Hence the expectations that this sudden jump in yields may herald that inevitable shift.

But the Fed's share of marketable U.S. treasuries has actually been dropping, even as yields and interest rates have fallen. Which means demand from the private financial markets is what's depressing those rates. The Fed isn't artificially moving the needle. It's the actual economy and its fundamentals that are in the driver seat.

Which means that, in all likelihood, this blip in yields was just that. And things should start heading towards the basement again shortly.