Steven Waldman takes a look at the yield on long term US bonds and concludes that although it's low, it's not really that low when you consider short term rates:
Since the financial crisis began, the market determined part of the Treasury's cost of borrowing has steadily risen, except for a brief, sharp flight to safety around the fall of 2008. Investors have been demanding greater compensation for bearing interest rate and inflation risk, but that has been masked by the monetary-policy induced drop in short-term rates.
Taking a longer view, we can see that the current term premium is at, but has not exceeded, a historical extreme
There are components of this spread. Perhaps people are worried about future inflation--but while the spread between inflation-indexed bond prices and regular treasuries is rising, it's still rather low. It's also possible that people are simply anticipating that eventually, a treasury bubble driven by the global "flight to quality" will dissipate, making it harder to unload longer-maturity debt. There's currency risk, too, especially since many of our creditors are foreigners. And of course, there's the dreaded default risk. If people stop thinking we're good for the money, they will demand higher interest rates, and tip us into crisis.
It's impossible to say which prevails, but it's not unreasonable to assume that there's at least some default risk pricing in. Our entitlement problem is about to open a gaping hole in the budget, and so far our solution is . . . to enact more entitlements. Unless our politicians start outlining some credible plans for getting our demography-driven disaster under control, bond markets would be perfectly rational to demand a discount that reflects a possible future fiscal crisis.