Are the bond markets going mad? It is a question that many investors might ask. For as anxiety has erupted in the eurozone, something striking has occurred with respect to US Treasuries and German Bunds.

If you look at the credit derivatives market - the place where investors judge the risk of bond default - government bonds are getting riskier, not just in places such as Greece but in supposed havens such as Germany, too. Two years ago, for example, the credit default spread on a German Bund stood at 40 basis points - meaning that it cost €40,000 to insure €10m of bonds each year against default. Recently, though, the spread has been well above 100bp, and could rise again if Angela Merkel, the German chancellor, opts for more bailouts. US bonds have also become riskier, judging by credit default swap prices, as Congress remains gridlocked on fiscal policy.

Normally this would imply that bond yields should also rise. After all, classic investment theory suggests that bond prices fall (and yields rise) with higher credit risk. That is exactly what has happened with corporate bonds in recent years, not to mention with sovereigns such as Greece. But in Germany and the US government bond yields have recently hit multi-decade lows. Short-term to medium-term bonds are paying negative real returns.

Why? One explanation is that the CDS market overstates default risk. Another - increasingly popular - idea is that bond investors are complacent about Germany and the US. A thoughtful new paper from Joshua Rosner, the investment analyst, predicts that German bond yields could soon rise as investors wake up to the costs of a eurozone bailout. The gap could also be blamed on deflation fears, a liquidity trap or government meddling (ie quantitative easing.)

David Fuller's view For the record, here is the German Bund CDS mentioned above. I have felt for some time that the historically low-yielding government bonds for heavily indebted countries were becoming increasingly risky. However, those who own them have been on a roll, as they say, and speak of them with a growing confidence reminiscent of 'new economy' dotcom bulls in the late 1990s.

Therefore my answer to Gillian Tett's opening question is, yes, to a degree. Obviously it takes a special set of circumstances to drive yields so low. The west's credit crisis and banking insolvency problems are serious enough. Bond bulls have had the reassurance of a momentum move in their favour, supported by lots of QE as central banks have gradually recapitalised their banking sectors via the yield curve. These are now flatter than we have seen for some time.

I would be wary of reassuring justifications for today's low yields. This does not necessarily mean that investors in western government bonds and JGBs need to dump positions where they have a cushion of capital gains, but they may wish to stand closer to the exit door. Overstretched trends are susceptible to convulsive reactions. In today's volatile markets plenty of leveraged participants, not least among the banks, may choose to stand aside at the first sign of trouble.

This week's action in bond futures looks like a shot across the bows, as you can see from these charts for US1 (US data taken at 6.40pm BST), RX1, G 1 (gap in November 2011 reflects coupon change), XM1 and JB1.