Maybe, just maybe, this whole bond rout is ending.

The global selloff that's set investors on edge finally slowedlast week, and some analysts are saying the worst is over.Treasuries look fairly valued given the outlook for inflation andinterest rates, according to Bank of America Corp.—although withplenty of caveats. In Germany, options traders convinced a bund-market crash was all but inevitable less than two weeksago have scaled back most of those bets.Rea

Goldman Sachs Group Inc. warns that government debt is stillexpensive, but a growing number of investors are finding valueafter the four-week exodus sent yields soaring. PrudentialFinancial Inc.'s Robert Tipp is buying because tepid U.S. growthwill keep the Federal Reserve on hold, while Europe remains too weak to sustain higher yields.

And don't forget about central banks in Europe and Japan, whichare buyingbillions of dollars in bonds each month.

“There's a good chance people will look back at this as havingbeen a good buying opportunity,” Tipp, the chief investmentstrategist at Prudential's fixed-income unit, which manages $560billion, said from Newark, New Jersey.

Ten-year U.S. notes posted their first weekly gains since April17, while German bunds pared some of their losses.

That lessened the pain of a selloff that lopped off hundreds ofbillions in market value from sovereign debt in the developedworld, data compiled by Bloomberg show.

The retreat first began in Europe as signs of inflation emerged with the ECB'smost-aggressive quantitative easing yet. Yields surged, especiallyin markets such as Germany where negative rates prevailed, thenquickly spread around the world as DoubleLine Capital's JeffreyGundlach and Federal Reserve Chair Janet Yellen suggested bondswere overpriced.

Yields on 10-year Treasuries, which reached a low of 1.82percent in April, rose to 2.36 percent on May 12 before ending theweek at 2.14 percent.

The yield was at 2.21 percent at 12:45 p.m. in New York.

In Germany, where average yields for the entire market dippedbelow zero for the first time ever last month, 10-year bund yieldssoared to 0.78 percent before ending last week at 0.62 percent. Theyield rose back to 0.65 percent on Monday.

The speed and magnitude of those losses still pale in comparisonwith previous market meltdowns, including the “taper tantrum” thatthen-Fed Chairman Ben S. Bernanke touched off in May 2013. Andthere's little chance of a repeat now, even if yields jump furtherin the near-term, according to Priya Misra, Bank of America's headof U.S. rates strategy.

Split Decision

Not only has a raft of U.S. economic releases—from retail salesto consumer confidence and factory production—been sodisappointing, the data hasn't nearly been strong enough to triggerthe kind of inflation what would prompt bond investors to demandmuch higher yields.

“For the bull market to be over, we need robust global growthand inflation,” said Misra, who forecasts 10-year yields will endthe year at 2.35 percent. “Fundamentals don't argue for much higheryields.”

Misra points to the “term premium” metric, which measures theextra yield that 10-year debt offers over short-term rates. Inmid-April, it was minus 0.35 percentage point, a mis-pricing thatsuggested yields were too low. It's now closer to zero, enough tocompensate buyers in a world where inflation is weaker than at anytime in a quarter century.

Some analysts remain unconvinced. Last week, Goldman Sachsboosted its year-end yield forecasts for both Treasuries and Germanbunds, saying the “valuation gap is still sizable” and will onlygrow as the global recovery takes hold.

The firm now sees the 10-year U.S. note ending at 2.75 percent,from 2.5 percent before, and comparable bund yields at 0.9 percent,versus its prior estimate of 0.5 percent.

“There is no question that rates are going to be going higher,”based on our forecasts for U.S. growth and Fed rates, as well as amore stable Europe, said Eric Green, the head of U.S. economicresearch at TD Securities USA.

Lower inflation and tepid growth in the U.S. still mean there'sless room for the Fed to surprise the market, unlike in 2013.That's when Bernanke shocked investors with his comments aboutreducing the Fed's bond buying and prompted them to move up theirprojections for when near-zero rates would end.

Based on Morgan Stanley's analysis of futures trading, tradershave pushed back their bets for the Fed's first rate increase toJanuary, from September just a month ago.

'Tinder Keg'

Fed officials have steadily lowered their forecasts for how highrates ultimately need to rise, to 3.75 percent, from as high as4.25 percent in January 2012. The overnight target rate has beenclose to zero for more than six years.

“The Fed is making its way to a well-telegraphed rate hike atthe same time the economic data is weak,” Tipp said. “You don'thave the same tinder keg as you had then.”

In Germany, alarm over deeper declines have dissipated. Therelative cost of bearish options versus bullish contracts on bundfutures has plunged since reaching an unprecedented high on May 7,data compiled by JPMorgan Chase & Co. show.

BNP Paribas SA said the euro-area bond slump is nearing an end,while Societe Generale SA said higher-yielding sovereign debt inthe region will recoup much of its losses.

To David Ader, the head of government-bond strategy at CRTCapital Group, the latest bout of selling had more to do withpanic-stricken buyers fleeing the same trades they all crowdedinto, rather than a change in the underlying economic outlook.

While deflation worries have ebbed in Europe, economistssurveyed by Bloomberg expect consumer prices this year to rise 0.1percent for the 19 nations that share the euro.

That, plus the fact the ECB plan to keep buying sovereign debtthrough September 2016 means yields will remain anchored.

“It was a panic, vomitous, puke of positions,” Ader said. Now,“we're reversing course.”

–With assistance from Susanne Walker in New York.

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