WHEN the Fed announced a new round of quantitative easing on November 3rd, part of the aim was to drive down bond yields in the medium-term part of the yield curve. One of the main arguments for QE is that it is simply a natural extension of conventional Fed policy; yields are so low at the short-end of the curve that the Fed has to intervene in the bond markets to have any impact at all.

But look at the chart. Ten-year yields are significantly higher than they were at the start of November. Now the answer might seem obvious. Investors are worried that money-printing will create inflation. But we can measure inflation expectations with the help of the index-linked bond market or TIPS. The gap between conventional and index-linked yields should represent inflation expectations. At the start of November, the expected inflation rate, measured by the 20-year TIPS issue, was 2.4%; it is still the same today. No shift at all.

Short-term measure of inflation have also moved in the wrong direction (in terms of explaining the yield move). The latest consumer price index numbers form the US were quite soft. Commodity prices have been dropping over the last week and gold is $100 or so down from the peak. The fact that China is planning to tighten policy is seen as bad news for commodities.

Nor is it plausible to say that bond yields are rising because investors have become less risk-averse. The Irish crisis should, if anything, have caused a flight to safety into Treasuries; equity markets were, until yeterday, struggling over the last week or so.

In addition, the issue is clearly not just about America or QE, since gilt yields have also been rising (see chart). A further round of QE in Britain is not impossible, but far from certain after better-tna-expected growth numbers and worse-than-expected inflation figures.

It is a little bit of a mystery; Simon Derrick, a strategist at Bank of New York Mellon, is also at a loss to explain the shift and thinks it might reverse shortly.

But the bottom line is that, so far, QE2 isn't working.