Two links supplied by Paul Kedrosky underline the risks in the bond market. http://paul.kedrosky.com/archives/2010/04/the_next_crisis.html http://paul.kedrosky.com/archives/2010/04/step-up_bonds_a.html
The first deals with the risks in the municipal bond market, and the second explains the rise of a new debt formulation...the step-up bond. Both of these markets are supported by vigorous bidding by pension fund managers. Are they crazy? They are not crazy...they are just desperate for yields.
The combination of rising pension obligations, the market meltdown last year, and low interest rates have undermined the stability of pension funds. Managers have turned to higher risk bond pools to meet funding requirements.
This will end badly, but the end of bubbles are hard to predict. We may have MUCH lower interest rates and much higher stock prices before something gives.