Two charts are very telling in analyzing the current state of the bond market.
First is an analysis of current yields in a historical context. The 30-year Treasury yield recently hit a record low, reaching levels not seen since right after the financial crisis. The market is pricing in a Lehman-style event when in fact none has occurred.
The second chart shows that Treasury yields appear to have hit a "double bottom" just above the 250 basis point range.
This is an especially important support line. Why? Well, it's already well known that shorter-term Treasury bonds like the 10 year and 5 year are selling for negative real yields. Given that the average inflation rate of the past decade is 2.48%, a dip below 2.5% in yields would mean that investors are essentially agreeing to lose money to inflation for 30 years. This, of course, does not even factor in the fact that after accounting for federal taxation of the bond interest, the after-tax yield is even more negative.
The "flight to safety" due to concerns about the macro environment is well documented, but when inflation-adjusted yields are zero before taxes (and negative after taxes), there really isn't any "safety" left. Current Treasury yields are 40% lower than historical ISM data suggests they should be, and experts like Cyril Castelli, CEO of RCube research, are predicting that bond yields will spike on any positive economic news. Based on these factors, I expect to see yields begin to rise again over the next few months. Investors would do well to reduce exposure to long-term bond funds like TLT.
Disclosure: I am short TLT.