Despite a huge plunge in bond yields recently, analysts say a repeat of June 2003 -- when market interest rates bottomed at close to 3% -- probably isn't in the cards.

After a disappointing employment report Friday, the yield on the 10-year note began to spiral lower and is now sitting at 3.72%, the lowest level since July 14. The move down has ignited speculation over whether yields are headed back toward a low of 3.11%, which was last seen on June 13.

But bond market analysts and traders believe that's unlikely. While they do expect yields to fall further going forward, possibly to 3.45%, they say economic expectations for the second half of the year would have to be ratcheted down significantly in order for yields to retreat as much as they did last year.

"I cannot imagine yields trading to 3.10% without a major event, like the economy turning south," said one bond trader.

In the wake of the jobs report, analysts sharply reduced the odds for a Federal Reserve interest rate hike in August and September. The Fed has said it won't raise rates until hiring starts to pick up, and so far, there's been little evidence of that.

The change in rate expectations -- fed funds futures aren't fully pricing in a rate hike until November now -- caught many bond investors off guard, forcing them to cover short positions. A J.P. Morgan survey in the lead-up to the nonfarm payroll data showed that just 12% of fixed-income investors believed that bond yields would head lower over the near term.

"People were not aligned for this," said Sadakichi Robbins, head of global fixed income at Julius Baer. "This is a pain trade."

While short-covering could send yields down to 3.45%, Robbins said he doesn't expect a more drastic slide. In fact, he said things are quite different today from how they were when the 10-year was sitting at 3.11%.

Back then, economic growth was still sluggish, and investors were widely concerned about deflation. Indeed, many analysts speculated that the Fed would buy long-dated government bonds in order to stave off deflation. Today, investors aren't nearly as worried about this threat, because commodity prices have been moving higher.

"To get back to the 3.10% area, I think we have to have something more than a technical breakout," Robbins said. "I think there has to be a fundamental basis behind it."

If economists were to lower their gross domestic product forecasts for the second half of the year to around 3% or 3.5%, Robbins said, that could ignite another round of buying. But right now, economists are calling for growth of 4% to 4.5% for the second half, and a drastic reduction seems unlikely.

Jim Bianco, president of Bianco Research, said he expects yields to hit 3.50%, partly because of mortgage-related buying. On Tuesday, Freddie Mac said rates on 30-year mortgages could fall below 5.5%, and analysts speculate that this could cause a wave of refinancing.

When homeowners refinance their mortgages, this tends to speed up mortgage prepayments. In other words, homeowners pay back more than they owe each month or pay back all of what they owe, because interest rates are lower.

These prepayments shorten the duration of mortgage portfolios. A 20-year mortgage, for example, might be paid off in 18 years. This hurts investors in mortgage-backed securities, and to offset the shortfall, they typically buy Treasuries to lengthen the duration. This is the convexity trade.

"All you need to know about the convexity trade is when you get an extreme move in interest rates, it exaggerates the move," Bianco said. "Now we're on the verge of having it potentially exaggerate the move back down again."

John Canavan, a Treasury market analyst at Stone & McCarthy Research, said mortgage-related buying "hasn't turned up in big numbers at this point" but could send bond prices higher and yields lower if and when that happens. He thinks yields could fall to 3.6%.

"I do think the trend and technicals argue for some more downside in yields here," he said. "But I don't think 3.10% is in the picture, given the rising commodity prices. There are going to be concerns about inflation picking up."

While most traders expect further buying in the bond market and slippage in yields, they also note that things could turn around very quickly. Last year, the yield on the 10-year note went from 3.11% to 4.4% in just six weeks.

"People keep waiting for those big employment numbers," said Canavan. "If we see those over the next few months, I think you'll see a very large and very quick reversal in psychology."

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