Deutsche Bank Strategists: Bonds Are in a Bubble

Most of the bubble talk these days focuses on stocks. But Deutsche Bank strategists led by Jim Reid see frothiness brewing in the global government bond market.

"The worry is that there is nowhere left for this bubble to go given that it is now in the hands of the lenders of last resort (governments and central banks with regulators ensuring other large captive buyers)," they write in a commentary obtained by MarketWatch.

"Although we think this bubble needs to be maintained to ensure the solvency of the current financial system, the best case scenario is that it slowly pops over time via negative real returns for bondholders. The worst-case scenario being future restructuring."

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The Barclays U.S. Treasury 20-Year-Plus index has returned 15.5 percent so far this year.

Bond-investment star Jeff Gundlach, CEO of DoubleLine Capital, doesn't see a bubble brewing in Treasurys. He told CNBC that doesn't anticipate major moves by Treasurys for the rest of the year, with the Federal Reserve unlikely to raise interest rates anytime soon.

Gundlach predicted in June that the 10-year Treasury yield would trade between 2.2 percent
and 2.8 percent through Dec. 31. The yield stood at 2.59 percent Friday afternoon. "I think bonds are going to remain fairly stable this year," he said.

Those who believe Fed Chair Janet Yellen is signaling an aggressive posture on raising interest rates have it wrong, he said. "I don't really hear Janet Yellen saying that. I hear a lot of her associates saying that," Gundlach said.

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