Worries over the economy and global debt levels have caused investors to rush to safe havens such as U.S. Treasury bonds amid the volatility in stocks.

Yields on the 10-year Treasury note recently dipped below 2% even though Standard & Poor’s downgraded its triple-A rating on U.S. government bonds. Bond yields and prices move in opposite directions. [Treasury ETFs Outperform]

The jump in Treasury bonds has led to renewed talk of a bond bubble. The bond bears think the rally is setting up the market for an even bigger plunge when interest rates eventually rise, reports Sue Shellenbarger for The Wall Street Journal.

For years, many investors have been warning that U.S. Treasury bonds are in the final stage of a multiyear bubble that’s set to burst. So far, it hasn’t panned out. [How Risky are ‘Safe Haven’ ETFs?]

The Federal Reserve’s decision to keep rates near zero until mid-2013 should keep a lid on yields. [Treasury ETFs Still Waiting for Higher Rates]

However, as rates remain low, the Treasury market will remain bloated, which has helped support pricing on everything else. When Treasury yields do rise, though, the losses will be felt throughout the market, remarked Elaine Stokes, co-manager of the  Loomis Sayles Bond fund. [ETF Spotlight: ProShares UltraShort 20+ Year Treasury (TBT)]

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