Are bond yields flashing a panic signal?

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Government bond yields in the U.S., Europe and Japan are plumbing lows, suggesting a flight to safety, but analysts aren't ready to hit the panic button.

"This is the first time ever that rates are this low, as even during the 1930s rates were well above current levels," Steven Englander, head of G-10 foreign-exchange strategy at Citigroup, said in a note this week, noting the average G-3 10-year government bond yield is below 1 percent.

The 10-year U.S. Treasury yield was trading around 1.98 percent late Tuesday in the U.S. after starting the year around 2.17 percent. Germany's 10-year bund was around 0.47 percent, around all-time lows, after ending 2014 around 0.54 percent, while the Japanese government bond (JGB) was around 0.30 percent, a tad up from the record low 0.265 percent touched earlier this week. Bond prices move inversely to yields.

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"This is not happening during the panic phase of a crisis, but after the panic is over and we have had significant recoveries in asset prices globally," he said. But rather than a panic signal, he calls it "more a sign that investors think we are going nowhere for a long time."

No warning

Others are also disregarding the idea that declines in already low bond yields may be a warning signal.

"The markets seem to be suggesting that you have perhaps even a recessionary environment, not dissimilar to an emerging market crisis, an Asian crisis or even the GFC (global financial crisis)," Piyush Gupta, CEO of DBS, said at a presentation for the bank's private banking clients.

He cited the 's around 40 basis point drop in yield in the first three trading days of this year, saying it may be the biggest drop in the 30-year's yield since records began.

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"While the markets are choppy and while there has been some slowdown, the reality is the fundamentals are not that bleak, not anywhere near as bleak as the markets are suggesting," Gupta said, citing expectations global economic growth will come in around 3.8 percent this year, up from 3.4 percent last year.

An overreaction?

Even those who have expected yields to remain lower for longer believe the decline may be an overreaction.

"We, too, think the markets are a bit more fearful than they should be," said Daniel Ivascyn, global chief investment officer at bond giant Pimco, which since last year has held a "new neutral" call for interest rates to reach equilibrium at lower levels than previously.

"We may have overshot even our view," he said at the same DBS client event. "That doesn't mean we can't go lower," he added, noting Pimco has turned more neutral on higher quality government bond markets.

"We're not extremely negative, but some of the recent price action is probably an overreaction," Ivascyn said.

Why nervous traders are fleeing to Treasurys

But Ivascyn didn't entirely dismiss concerns over looming risks to the market, such as Russia's tanking economy or concerns Greece may exit the euro zone.

"Russia in isolation is a risk we can manage. Greece, or Grexit, in isolation is a risk we can manage. The challenge for financial markets is that one risk in isolation may not be the story," he said.

No fear

To be sure, some don't think the decline in yields is a fear play at all.

"The steady decline in the yield of 10-year U.S. Treasurys has been entirely due to a decline in inflation expectations, brought about by the collapse in the price of oil," John Higgins, an economist at Capital Economics, said in a note Thursday.

He expects the 10-year yield will rise sharply this year, as lower oil prices help spur the U.S. economy to absorb any slack and quash deflation fears and as oil prices will likely recover over the next year or so.

Indeed, Capital Economics isn't even overly concerned about another fear that has been weighing on global bond yields: deflation. European data Wednesday confirmed that consumer prices fell 0.2 percent on-year in December.

"In general, deflation in consumer prices should be positive for economic growth," Capital Economics said in a separate note, adding that it should only be a problem if nominal incomes and asset prices also fall or if expectations for falling prices become ingrained.

With the decline in consumer prices largely related to declines in oil prices, or "good" deflation, it may just increase the amount of money consumers spend on other items, it said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1