This is the worst economic contraction on record, which sent investors on a safe-haven scavenger hunt, in turn sending the yields on stocks and treasury exchange traded funds (ETFs) to lows not seen in 50 years.

The Treasury’s benchmark 10-year note touched 2.50%, a level not seen since 1954, while the 30-year note dabbled around 3%, with 20-year notes trading around 3%, reports Randall W. Forsyth for Barron’s. The declines in yields have to do with the onslaught of investors rushing to government securities for safe hiding after the stock market’s steep slide.

Some economists fear that a rush to Treasury bonds and ETFs could actually slow the economic recovery, report Vikas Bajaj and Michael M. Grynbaum for the New York Times. If investors continue to remain loath to put money into stocks and corporate bunds, it will constrict the amount of funds that businesses need to finance their operations.

Tuesday’s auction of $30 billion in short-term securities came at a 0% yield, which investors accepted. Demand was so great, in fact, that the government could have sold four times as much.

Meanwhile, possibilities for a bigger bond supply are evident after President-elect Barack Obama announced plans for the biggest infrastructure investment program since the 1950s, reports Ian Chua for Hemscott. Bond yields are already at historic lows, so investors may need more incentives to put their money into the bond market right now.

The sales aren’t over, though. Deborah Lynn Blumberg for the Wall Street Journal reports that the U.S. government could sell more than $400 billion in Treasury notes and bills in the final weeks of the year to cover its soaring funding needs. If it were any other “normal” time in the stock market, yields would be set to expand, causing a bond frenzy.

• iShares Lehman 7-10 Year Treasury Fund (IEF): up 14.4% year-to-date; yield is 3.8%

Tags: Bond ETFs, IEF, Obama, Treasury Bonds