Behind the "surge" in U.S. Treasury yields: the market begins to question the credibility of the Federal Reserve.

The Federal Reserve, intent on streamlining communication, unexpectedly triggered a communication "incident." When the Fed opted to stay put at its July meeting and attempted to narrow the communication window with the market, bond investors responded with a fierce sell-offrecently, the yield on 30-year U.S. Treasuries soared to 5.27%, the highest since 2007; the yield on 10-year U.S. Treasuries climbed to 4.7%, reaching a new peak for the year. Behind this turmoil in the U.S. Treasury market, what may be truly impacted is not merely the level of interest rates, but the policy credibility that the Fed has built up over the yearsmarkets no longer unconditionally believe that the Fed can "tame" inflation, and investors have begun to price in greater long-term inflation and policy risks.