Bonds are not overvalued now, even though many have argued to the contrary recently, says economics guru Mark Hulbert.

“That, in effect, means taking seriously the notion that inflation and interest rates are not likely to go higher anytime soon,” writes Hulbert, editor of The Hulbert Financial Digest, on Marketwatch.

Hulbert reports that is reasonable to believe inflation will be low because of a number of economic factors.

There is excess capacity throughout the industrial economy, which puts pressure on the inflation rate.

What is more, there is slower growth in debt accumulation in the private sector, which, contrary to what is going on in Washington D.C., is deleveraging.

Nominal interest rates are low, but high real interest rates, or the spread between long-term Treasury bonds and the consumer price index (CPI), and that further discourages debt accumulation.

What is more, historically, inflation has fallen after every recession since World War II.

“If there were some factor out there that makes bond prices obviously overvalued at current levels, it's a good bet that traders would be selling bonds in droves,” writes Hulbert.

Not everyone concurs with this hypothesis, however.

The bond market's was made quite nervous by an article in the Financial Times which indicated Fed officials are considering legal changes to give them more flexibility when the moment comes to raise interest rates in the coming year.