Of course, the Fed can't force the market to do its will with long-term rates. When the Treasury sold $24 billion worth of 10-year notes on Wednesday and $16 billion worth of 30-year bonds on Thursday, demand wasn't particularly robust.
Investors have pushed the 10-year T-note yield up more than 0.3 of a point from its 60-year low of 1.72% in late September. A temporary move up to 2.5% wouldn't shock Wall Street.
But the Fed clearly wants to be an anchor on bond yields, and Chairman Ben S. Bernanke has left no doubt that policymakers could throw more money at the bond market if they thought the economy needed more help on rates.
That brings us to what is usually the main driving force behind interest-rate moves, up or down: expectations for the pace of economic growth.
The U.S. economy has defied predictions that it would fall back into recession. Gross domestic product rose at a 2.5% annualized rate in the third quarter, nearly double the second-quarter rate. But this is an economy that continues to face so many head winds — including high consumer debt, high unemployment, and state and local government austerity — almost no one believes that a breakout to sustained fast growth can happen soon.
Bernanke said last week that U.S. growth was "likely to be frustratingly slow." An economy that muddles along probably isn't going to scare investors out of bonds.
Something else could: a further jump in inflation.
Pushed up by higher food and energy costs, the Consumer Price Index was up 3.9% in September from a year earlier, the fastest rate of inflation in three years. That means a 2% bond yield is a money-loser right now, after inflation.
The Fed keeps saying that inflation will moderate. Bond investors seem to be buying that story.
Is this all just a case of mass delusion? The best reason to believe that U.S. bond yields can't stay this low for much longer is that so many people are on that side of the boat.
But if money were to exit high-quality U.S. bonds en masse, it would have to go somewhere else. With Europe a mess, stock market volatility off the charts and cash paying nothing, for now many bond investors see their alternatives as severely limited.