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"The recent breakout of the U.S. 10-year Treasury yield above 3.5% is an important technical signal, highlighting that the macro-backdrop is increasingly turning against the bond market," said BCA Research in a recent report.

I share the following BCA Research view: "Our global cyclical bond indicators have been bearish for some time and valuation is poor in most of the major countries. The only missing ingredient for a fully-fledged bond bear market is the start of monetary tightening cycles in the U.S. or Europe. Recent comments from Chairman Bernanke, President Trichet and Governor King give us little reason to question our call that the Fed, ECB and BoE are on hold until early 2012. Nonetheless, there is room for the market to discount a faster pace of rate normalization even if central banks do not get started until early next year.

"We are not extremely bearish on government bonds in the near term because the absence of central bank rate hikes should limit the upside for yields in the coming months. Nonetheless, we expect yields to ultimately be significantly higher on a 6-24 month horizon."

Although bearish in the medium to longer term, a short-term rally in bonds won’t surprise me owing to their overbought condition.

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Source: Government Bonds: Buyer Beware