It used to be common knowledge that the Treasury trade was all about the Federal Reserve. Once the Fed stopped buying bonds and started talking about raising rates, yields would return to more historically normal levels, and the bond rally would finally end.

At least, that's what Wall Street used to think.

This week, yields of long-term bonds (specifically, the 30-year Treasurys) have dropped to the lowest levels of the year. This even as the Fed continues to be on a pace to end quantitative easing, and likely raise rates in the first half of 2015.

But recently, Treasurys have been driven by the historic lows seen in European yields. Yields in the euro zone have plunged due to poor economic conditions, and expectations the European Central Bank may take action by easing.

And when faced with an Italian 30-year yield of 3.6 percent, or a German 30-year yield of 1.7 percent (not to mention a Japanese 40-year yield of 1.8 percent), buying a U.S. bond in order to capture a yield just above 3 percent seems like a pretty good way to go.

"Remember how cute it was in the beginning of the year, when we kind of thought that the tapering of QE would potentially have the Fed lose control of long-term rates?" Jim Iuorio of TJM Institutional Services said Thursday on CNBC's "Futures Now." "The opposite has happened. As a matter of fact, now the tapering of QE is a secondary influencer on the long end. Right now, it's all about Europe. The money just keeps getting flooded into the system, and it has to find yield."

"We say 'wow, [the 30-year yield] has hit a 2014 low—it doesn't look low compared to a lot of the European yields,'" he added. "So in my opinion, it probably goes a little lower still."

This central bank may be calling bond yields for now

Jason Rogan, managing director of U.S. government bond trading at Guggenheim Securities, makes the point that anticipation of a Fed rate hike can indeed be seen in bonds—but only in the shorter-dated Treasury notes, which have observed yields rise considerably over the past three months.

"The curve is being split in the middle," he said. Looking at different bond maturities, Rogan notes that "the 5s and 2s are reflecting the Fed and what the U.S. economy is doing, and 7s and out are reflecting what's going on in Europe."

Read More Treasury Department auctions $29 billion of 7-year notes at a high yield of 2.045%

But just because the Treasury market is pricing in a rate hike, that doesn't necessarily mean long-bond yields have to rise anytime soon. In fact, the opposite might well happen.

"It's funny—a lot of people are expecting that what you're seeing in the belly and the back of the curve might filter into the front end," Rogan said.

After all, no matter what the Fed might do, a yield of 0.5 percent on a U.S. two-year bond looks a lot better than German or Swiss two-year yields, which are currently negative (meaning investors are effectively paying Switzerland or Germany for the right to lend them money).

If yields do continue to fall, the mandate for traders is clear.

"It definitely bad for savers—we're getting as much rate in the bank as we are just putting the money under our mattress, like the old Italians used to do," said NYMEX trader Anthony Grisanti (who does happen to be of Italian ancestry). "But it's good for investors," as it makes stocks look more attractive by comparison.

—By CNBC's Alex Rosenberg

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