The last time I checked the VIX was a barometer or gauge of fear/uncertainty in the marketplace. When people speak about the bond market and why people are rushing into (buying) them it is usually in times of peril and this "flight to quality" is a sign that people are fearful and they are parking their capital in a "safe haven." So if these statements are true, then something is awry in one of these markets. Perhaps as investors we are overlooking an opportunity into a good risk reward trade. My background is the commodity market which is the kiddy pool, the stock market is the swimming pool and the bond market is the ocean. In terms of the VIX which is trading at 23 as I type up about 6% on the day in the face of a rising stock market but obviously also in front of Sunday's Greek elections.
Either way we are talking about a market that has basically traded around 15 as a historical low and has three times traded over 40 in the last two years and as high as 79 in late 2008. So we are basically 8 points away from the historical low and 17 points away from the high of the last two years (2-1 in terms of upside/downside risk). Being closer to the low (less fear) than the high (greater fear) isn't exactly coinciding with the bond market and record low yields which indicate fear is at its highest. Granted the Federal Reserve has its hand in the cookie jar in the bond market with operation "twist" and quantitative easing measures but it is still telling us a different story than the VIX.
I believe that speculators create fair value but that too many speculators create price inefficiencies. When crude topped out in July 2008 towards the end of the housing bubble I will propose to you that it was all of the "get rich quick" scam artists who were handed free money after taking out mortgages on homes they could never afford that began to speculate in markets such as Crude to try and parlay their government sponsored handouts. We saw what happened to Crude after the housing bubble burst (chart attached) in terms of a drastic rush to the exits to liquidate long positions and the impending free fall in the price of Crude. Recognize that the chart is attached as a reference and I do not imply past performance is indicative of futures results because it is not.
So now if we look at the bond market and understand we have the Federal Reserve involved on top of the regular "bond vigilantes" then common sense would tell us that we have more than the average number of speculators in the bond market because of the Feds involvement. The bond market will have its day when the fed "unwinds" its bond purchases which have been keeping rates artificially low. If and when this trade unwind happens the stock market won't be popping any bottles of bubbly in celebration of higher rates. I picture the bond market as a large group of people walking into an arena in an orderly fashion through one door. Once everyone is inside and settled just hope and pray that no one yells "fire", or in this case hopefully the Federal Reserve doesn't yell "sell."