For the moment inflation is quiescent. That and the allure of nearly 300 basis points per day of carry make the 30 year bond appear to be an attractive investment. So, as the Federal Reserve places that funds rate at zero it will compel more and more investors to climb out the yield curve to capture some performance. (A stable well defined trajectory for funding and lots of positive carry. That was one of the main ingredients for the sub prime debacle.) [Emph added.]
So we lurch from one carry trade to the next. For this reason and this reason alone we can take comfort that the euphoria in the bond pit is based not on fundamentals (3% for 30 years!!) but rather on (more) performance chasing. And insofar that this is so, the move in treasuries is not terminal and will, like all the other carry trades passim, have to be unwound.
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