35-Year-Old Bond Bull (FINALLY) Is on Its Last Legs

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Neil Dwayne, global strategist at Allianz Global Investors, is still buying. "Every piece of analysis we do on the bond market tells us they are structurally overvalued," he said. But he is buying Treasurys anyway. "That's what you have to do when you have the ludicrous valuations in Europe and Japan."

It isn't only the sudden ramp-up in prices (and so fall in yields) that is worrisome. Bonds have been reacting to economic news in strange ways, and their relationship to equities has, at least in part, broken down.

There are two reasons today why this can't continue.

Simply, there is a limit to how negative yields can go before money becomes meaningless. This means investors switch to holding physical cash, even with all the risks and inconvenience it brings. The limit could be removed by abolishing bank notes, but such radical action would cast doubt on the entire currency, and surely prompt a flight to gold.

Reversing the 35-year trend is most likely to be driven by governments loosening the purse strings. Central bankers have been urging such fiscal stimulus as they worry that their own monetary tools are having damaging side effects, hurting banks and risking share- and property-price bubbles.