Nobel prize-winning economist Paul Krugman said there is no risk that Treasury yields near historic lows signal a price bubble. Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said that what is important, even though prices might appear ''bubbly,'' is that unprecedented global central bank monetary stimulus won't end anytime soon.

“People are well aware they are not going to get a positive real yield,” Krugman, professor of economics and international affairs at Princeton University in New Jersey, said in a Jan. 28 interview on Bloomberg Television. “They just think government bonds are safer than the other stuff that is out there.”

The payer skew was mostly negative from 2006 to 2008, indicating greater relative demand for hedges against lower yields. The Fed cut its benchmark overnight bank lending rate from 5.25 percent in September 2007 to a record low of zero to 0.25 percent in December 2008 as the collapse of the subprime mortgage market triggered the worst financial crisis since the Great Depression.

Eoin Treacy's view It is perhaps a truism but nothing goes up for ever. However, when something has been moving in a single direction for a long time, the confirmation bias of those invested in it makes them less, rather than more likely, to be able to predict the eventual end. The Paul Krugman quotes in the middle paragraph above are therefore interesting since they boil down to saying that government bonds are safe because the price has been going up.

If we accept that the largest bull markets inevitably give way to large bear markets and vice versa, it is inevitable that at some point government bonds will be the most risky asset despite the fact prices have been going up for a long time. Since government bonds are an important asset class I thought it would be timely to review some of the larger markets on an absolute and total return basis.

The US 10-year yield pushed back above the 200-day MA for the first time since April 2011 at the beginning of January and has since rallied above 2%. A sustained move below 1.8% would be required to question current scope for continued higher to lateral ranging. The Merrill Lynch 10-yr+Total Return Index has also dropped below the 200-day MA for the first time since 2011. Dips below the MA have been observed in the past, although none have occurred from such elevated levels. If the more than 30-year bull market is to remain consistent it will need to find support and sustain a rally back above the MA.

The German 10-year yield has rallied to test the upper side of its six-month range and while somewhat overbought in the very short term, a clear downward dynamic will be required to signal a return to demand dominance. The Bloomberg/EFFAS Germany Government 10+ year Total Return Index formed a ranging consolidation from July, as it unwound its overbought condition relative to the 200-day MA. It is now testing the region of the trend mean but a sustained move below it would be required to question the broad consistency of the medium-term uptrend.

UK 10-year yields hit a medium-term low between June and August 2012, ranged above 1.68% from September and broke upwards once more in January. The rate found support near 2% three weeks ago and a sustained move below 1.95% would be required to question medium-term scope for continued higher to lateral ranging. The Bloomberg/EFFAS UK Government 10+ year Total Return Index encountered resistance near 650 from June and dropped below its 200-day MA at the beginning of January. It will need to sustain a move back above 625 to question potential for a further test of underlying trading.

The Japanese 10-year yield lost downward momentum from July and posted a higher reaction low for the first time since April 2011 three weeks ago. A sustained move below 0.7% would be required to question potential for additional higher to lateral ranging; demonstrating supply dominance over the medium-term. The Bloomberg/EFFAS Japan Government 10+ year Total Return Index tested the region of the 200-day MA from early January but will need to break down from a distribution below it to confirm medium-term supply dominance.

The Swiss 10-year yield hit a medium-term low, posting an upside weekly key reversal, in mid-December and has continued to advance. A sustained move below the 200-day MA, currently near 0.63%, would be required to question medium-term supply dominance. The Bloomberg/EFFAS Switzerland Government 10+ year Total Return Index continues to extend its drop below the 200-day MA but will need to encounter resistance near 300 on the next reversionary rally in order to confirm a change of trend.

The Australian 10-year yield has lost downward momentum but has held a progression of lower rally highs, despite the recent rally towards 2%. A sustained move above 2.2% will be required to begin to suggest supply dominance beyond the short term. The Bloomberg/EFFAS Australian Government 10+ year Total Return Index has formed a ranging consolidation over the last six months and completed a reversion towards the mean. It is currently testing the region of the 200-day MA but a sustained move below it would be required to question the consistency of the medium-term uptrend.

The Canadian 10-year yield rallied to break its almost two-year progression of lower rally highs last week and a sustained move below the 200-day MA, currently near 1.85% would be required to question medium-term scope for continued higher to lateral ranging. The Bloomberg/EFFAS Canada Government 10+ year Total Return Index extended its drop below the trend mean last week and will need to sustain a move back above 650 to question medium-term supply dominance.

In conclusion, the majority of the above government bonds have experienced at least short-term technical deterioration from historically high levels; having either dropped below or tested their trend means on a total return basis. They will need to find support in this area if medium-term uptrends are to remain reasonably consistent. Considering the potential impact of political uncertainty in Spain and Italy and the concurrent short-term overbought conditions evident in stock markets, the potential for at least a steadying of government prices in this area has increased.