Long End Treasury Yields Falling

With the 2 year Note Yield at record lows and the 5 year near record lows, I wanted to examine how much further they could fall and how much further the 30 year bond could fall to catchup to the levels seen when the 30 year made record lows December 18, 2008.

The Chart below shows yields on the 2,5,10, and 30 year going back to January 2008.

The Chart below shows the yield spread between the 30 vs 2, 30 vs 5. I also divided the 30 yr by the 2 year and the 30 year by 5 year to see the spread at a more magnified view.

The 2 year has breached 2008 lows and is making new record lows, while the 5 year is 20 basis points from the low of 1.266 set December 18,2008. The 30 year has a long way to go if it is to catchup to the yields it saw during December 2008 lows. Given the Short end of the curve has already hit or is near record lows, how much further does the 30 year have to drop to catchup?
The 30 year made a record low of 2.53% on December 18, 2008, which means as of Fridays close the 30 year trading at 3.87% would have to drop 1.34% or 134 basis points to retest those record lows.

With ZB currently trading around 132, we could expect ZB to rise all the way to 142 if yields are to retest December 2008 lows.
Here is a chart of ZB Trading Today August 15, 2010.

Here is a chart of ZB trading under the March 2008 contract during the period of December 2008.

Here is a good article from Bond Squawk on Negative Tip spreads.

If negative TIP spreads don't currently forecast rising inflation, but just a reduction in forecast GDP and economic growth, then would gold be a good investment? Most people believe gold is a good inflation hedge; however, Mish Economic Analysis found Gold to be a better investment during periods of Deflation as opposed to periods of Inflation.

So what should we do? Bet on Deflation and a possible double dip recession? Buy the long end of bonds, go long gold, and stay out of stocks? We shall see in time what happens.