"Finally, my favorite short of the next decade is the U.S. bond market, for those that possess deep enough pockets, have the fortitude and the patience. I am long ProShares UltraShort 20+ Year Treasury [TBT], which is the inverse, double-short bond ETF. Over the past 2½ years, bonds have achieved a near 60% total return. A remarkable feature is the consistency of positive returns and the absence of many drawdown years of consequence. Nevertheless, they should be viewed as a return-free asset class that is very risky. The 10-year yields under 1.5%, less than half the yield during the recessions in 2001 and 2008. That means I am paying over 65 times earnings for a 10-year-bond, a rich price even by Amazon's or LinkedIn's standards."
Read the rest here. It is interesting that Robert Prechter, of Elliott Wave International and a deflationist at the moment, also agrees that Treasury bonds are in the process of topping out, but based on credit risk, not inflation risk. Below is a 20 year chart of $TNX, the 10-year Treasury Note Index. The question is whether the the 10-year note yield bounces around between 1 and 2% or 2 and 3% for an extended period of time like the 10Y JGB. Japan's 10y note yield is around a 9-year low at 0.765%. Japan is still battling its secular deflationary environment and has a high debt/GDP ratio. From 5/22/12: JGB Watch: Fitch Downgrades Japan, Sees Debt/GDP at 239% in 2012 (10-year JGB Yield at 0.855%).