According to legend, bond traders impose discipline on governments. Bond vigilantes sell bonds and push interest rates up when governments pursue inflationary monetary policies. In this way, free markets restrain government excesses.

In the past few years, the Federal Reserve and other central banks have made the bond market largely irrelevant. Massive buying programs have helped the central banks keep interest rates down. Bonds have been largely immune to market forces for some time.

That trend has been reversing and rates are rising as bond vigilantes are once again demanding a return on their investment. As one example of how rates are beginning to return to where they should be, 30-year inflation-protected bonds are now trading with a yield of 0.89 percent.

Since these investments are protected against the risk of inflation, this yield represents the only gains an investor can earn on their money. Before quantitative easing began, this yield was consistently above 2 percent, but has been artificially depressed since quantitative easing began

Like other interest rates, inflation-protected rates have increased significantly since the beginning of May, when investors were accepting negative 0.24 percent on these bonds.

Bond vigilantes seem to be requiring a return on investment again and rates are rising toward their historic averages.

If bond traders regain their historic role and demand returns that account for their risks, interest rates should move up at least another percentage point. This increase could slow economic growth and lead to more Fed intervention in the markets.

Bond traders are adding new problems for the Fed as they consider how to end their buying spree without letting the economy slip into recession.