Meanwhile, yields on shorter duration Treasurys, while slightly lower Wednesday, have been inching higher on expectations that the Fed will ultimately move to raise rates next year. Headlines from Europe Wednesday, including from German Finance Minister Wolfgang Schaeuble, attempted to squash speculation that the ECB would take some further easing action next week, but bond yields still moved lower. Traders said concerns about Ukraine, and reports that Russia was sending troops inside that country, also weighed slightly on the long end of the curve.
"It's yield grab and geopolitics at the back end, and policy speculation at the front end," said Adrian Miller, director of fixed-income strategy at GMP Securities. "Every time the yields tick lower is because someone thinks the ECB is going to drop another pile of cash on the market, and it's going to spill over to the U.S."
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Europe's economy will be in focus again Thursday as Germany reports inflation data. Weaker-than-expected German consumer confidence helped drive yields lower Wednesday. The concern has been that Europe's economy is weakening and the continent risks deflation, so a lower-than-expected reading would be a negative.
"Long assets are what people want and need right now. You're seeing the long end of the curve is where we've traded very well," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald. The 30-year yield fell to 3.10, touching the lowest level since May 2013.
"It feels like a 3 percent bond. Nobody expected this. Many people were set up for a higher rate environment," he said.
While speculation is rampant that the ECB could tweak a new lending program for banks next week, there is some chatter that it could propose QE, or quantitative easing at the end of the year or next year. But there are also many investors who believe it would be difficult for the ECB to launch a program to buy sovereigns, similar to QE in the U.S.
"The short end is being driven by the economy and the long end is being driven by the global yield play, and the lack of available product," said Northern Trust chief investment strategist Jim McDonald. "I don't think it's an economic indicator. I think it's a matter of supply in the market."
McDonald said yields could go lower, and the U.S. 10-year could be in the 2 to 2.5 percent range.
"The trend now is lower inflation which means the potential for lower bond yields. Something that's underappreciated is there's a real imbalance of supply and demand. There's a scarcity of those sovereign assets," he said noting that the Bank of Japan has been buying government bonds while the Fed buys Treasurys under QE.
McDonald said the rising stock market and rising bond prices can coexist, and the low bond yields are not flashing a warning. "We reconcile it by saying the bond market is being supported by a huge amount of liquidity, so it's really an interest rate differential story."