Bonds are on quite a roll, with the 10-year Treasury yield closing Tuesday at 1.96 percent, its lowest close since May 2013.
But the fixed-income market isn't in a bubble, Nobel laureate economist Robert Shiller told
Money magazine last month.
"It doesn't clearly fit my definition of bubble. It doesn't seem to be enthusiastic. It doesn't seem to be built on expectations of rapid increases in bond prices."
Rather than enthusiasm, this market rally is built on worry — worry about falling oil prices, about recession and deflation in Europe and about the soaring dollar, experts say.
To be sure, Shiller notes that research he conducted with ace University of Pennsylvania finance Prof. Jeremy Siegel shows that bond investors don't perform well in anticipating inflation.
The Federal Reserve has a 2 percent inflation target. Its favored inflation gauge, the personal consumption expenditures price index, rose only 1.2 percent in the 12 months through November.
In the new version of his book Irrational Exuberance due out this month, Shiller was going to describe the current bull market as the "post-subprime boom."
"But I changed it at the last minute," he says. Now Shiller calls this era "the new normal boom."
Meanwhile, some experts are growing concerned about the plunge in global bond yields — they stand even lower in Japan and Europe than in the United States.
"Make no mistake, these low levels of rates are challenging the notion that we are going to see robust and constant growth," George Goncalves, head of U.S. rates strategy at Nomura, told
The New York Times.
The worry is that the drop in rates are a sign of deflation. The risk is greater in Europe and Japan, as their economies are in worse shape than the U.S. economy is.
The drop of oil prices to 5 ½-year lows has contributed greatly to the deflationary fears. In Europe, consumer prices fell 0.2 percent last year.