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Traders see warning signs in the US bond market

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As bond yields tumble, some traders say that the flight to safety may be sending a rather ominous signal for the global economy.

The U.S. 10-year Treasury note yield fell to its lowest level since April 2015 on Tuesday as stocks dropped 2 percent. According to Boris Schlossberg of BK Asset Management, the move into bonds is in response to a weakening economy on the cusp of a potential recession.

"The bond market is flashing yellow for caution right now," Schlossberg said Tuesday on CNBC's "Trading Nation." "I think the bond traders are telling you there is no growth going forward and the Fed is far too optimistic in its projections as it stands right now."

Falling yields are typically seen as a sign of diminished confidence in economic growth, as it shows that investors are less excited about the potential returns in other assets, and also implies an expectation that inflation will remain muted.

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While Schlossberg said it's too soon to determine whether the U.S. economy will go into a recession, he noted that at the very least, bond traders are anticipating a "major slowdown."

"Investors have nowhere else to place their bets. They're not optimistic about growth," he said.

As central banks across the world keep interest rates low, Phillip Streible of RJO Futures said investors have been piling into U.S. bonds. The best bet for finding yield, he said, continues to be long-term bonds such as the 10-year Treasury note and the 30-year Treasury bond.

"It seems like investors, especially today, were aggressively going after those yields," Streible said Tuesday on "Trading Nation." "We've seen a global switch from country to country, going after the highest-yielding [bonds] and the U.S. market, although we've got our problems, it's the safest one out of the bunch."

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