Probably the single most important number in the global economy is the long-term rate of interest established by the so-called “benchmark” yield on the ten-year US government bond. This number, which shot up from 4.7 per cent three weeks ago to 5.3 per cent last Tuesday, largely determines the level of long-term interest rates in every other country.

It thereby exerts a powerful influence on stock markets, property prices and business investment and ultimately sets the course for economic activity and monetary policy around the world.

Against this background, the biggest question today for businesses, economic policymakers and investors, as noted last week in this column by Gary Duncan, is whether the sudden sell-off in the US bond market, which triggered the worldwide increase in long-term interest rates this month, is just a temporary aberration or the beginning of a sustained breakout to new highs, marking the end of the so-called “conundrum” of exceptionally low long-term interest rates around the world.

In my view, the answer is an Augustinian “yes”, but perhaps not quite yet. The market’s big fears at the moment are about an unwinding of the structural conditions that have kept global bond yields so low. But what exactly does this mean? In the past few years, the upward pressure on interest rates normally exerted by rapid economic growth and central bank tightening has been counteracted by four structural factors:

— Regulatory and accounting pressure on pension funds, strongest in Britain but also evident in the United States and Canada, to shift their investment portfolios from equities into bonds, as a result of which pension funds have stopped acting as normal profit-maximising investors and become forced buyers, willing to mop up unlimited amounts of government borrowing, at almost any price.

— A desperate search for higher returns by retiring Japanese savers, who have been receiving zero interest rates on their bank accounts and not much more on their pension and life funds, which between them constitute the biggest pool of savings in the world.

— Currency manipulation by Asian central banks. which has led to more than $2 trillion of reserve accumulation by China, Japan and neighbouring countries.

— The vast shift of global income, caused by the doubling of oil prices, from American households, which tend to keep most of their savings in equities, to Sovereign Wealth Funds in the Middle East and beyond – including institutions such as the Norway oil fund and the Russian stabilisation fund – whose mandates require them to invest overwhelmingly in government bonds.

Between them, these four distortions in global capital markets largely explained, at least in my view, the conundrum of astonishingly low real yields. But what is the evidence that these distortions are coming to an end?

The pressure on pension funds to abandon profit-maximising investment management is still growing. If anything, the stampede into bonds will be intensified by the latest increase in interest rates, which, combined with the rise in global stock markets, has returned many pension funds to technical solvency. Many corporate managements will want to lock in this position by investing their entire pension funds in the bond market and getting out of the investment management business once and for all.

Japan shows no sign of moving from its policy of ultra-low interest rates, suggesting that Japanese private savers will continue to pour their money into global bonds.

The other two structural influences may, however, be changed. China and other Asian countries still accumulate reserves and try to maintain undervalued exchange rates, but their enthusiasm for this policy may be running out, partly because of US pressure, but mostly because the costs of currency manipulation are starting to emerge in their domestic food inflation and financial bubbles. If China were to decide to free its exchange rate, global financial conditions would certainly be transformed, but any such move still seems many months, if not years away. The same is true of the final structural influence on long-term interest rates – the insatiable appetite of Sovereign Wealth Funds for US and European government bonds. Several of these institutions, representing the governments of Norway, Russia, China and several Arab oil states, have recently announced changes in their policies, implying more investment in equities, property and other real assets and smaller purchases of bonds. But this shift, like the one in Chinese currency policy, is likely to be a very slow one and has hardly yet begun.

Why, then, have markets suddenly become so focused on these long-term changes in the past month? The most plausible answer is simply a change in the cyclical outlook for the US economy. In the past few weeks, investors have finally woken up to the argument that this column has been presenting since this time last year: that the present US economic slowdown is not a prelude to recession and, therefore, that the Federal Reserve Board is very unlikely to slash short-term interest rates in the way that bond markets were expecting even a few weeks ago. It is this shift in investor perceptions, driven by stronger-than-expected US economic figures, that seems to account for the sudden change in sentiment. This new perception of a healthy US economic rebound will, almost certainly, be proved right. Having said that, however, America is very unlikely to jump straight from the present slowdown into a period of strong growth.

In the next few months, we are bound to see some weak US statistics and maybe even a revival of recession fears. As a result, speculation about a small cut in US interest rates will probably soon revive in global financial markets. If and when this happens, bond investors everywhere will enjoy at least one more temporary reprieve.

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