On the other hand, Treasury bulls argue that yields can decline even further as markets fret over signs the economic recovery is losing steam, raising concerns over the prospect of a double-dip recession.
Falling yields have "confound[ed] many who have long asserted 'out of control' government spending will cause bond vigilantes to drive yields higher," said Dan Greenhaus, chief economic strategist at Miller Tabak, in an Aug. 3 note.
Other factors favoring lower bond yields are the absence of any meaningful inflation in the CPI numbers and expectations that the Federal Reserve won't be raising interest rates anytime soon.
Interest-rate futures suggest there's little chance that the Fed will increase its target policy rate before June 2011. On Friday, Pimco's Bill Gross told Bloomberg it is doubtful the Fed will raise rates within the next two to three years as it tries to prevent the economy from relapsing into recession.
The Fed's policy-setting FOMC meets this week. There has been talk the Fed could engage in a fresh round of so-called quantitative easing to help the economy, such as using its balance sheet to purchase bonds, including Treasurys.
Also, any flare-ups in Europe's sovereign-debt crisis could stoke the flight-to-safety trade and push bond prices higher. Indeed, Treasurys were one of the few investments that provided cover from the credit storm in 2008. With many assets moving in lockstep, some say Treasurys are one of the last diversifiers left for stock investors.
The iShares Barclays 20+ Year Treasury Bond Fund was a safe harbor in 2008 as the ETF gained 33.9% in a year that saw the SPDR S&P 500 ETF (SPY) dive 36.7%, according to investment researcher Morningstar Inc.
Finally, the specter of deflation is a powerful influence driving many investors into bonds as the world deleverages after the credit binge. Companies and individuals are saving more rather than spending, and the unemployment rate remains stubbornly high.
Reflecting these fears, investors are piling into bond ETFs and mutual funds, and shying away from equities.
"After lingering in the background of the ETF industry for the last several years, fixed-income funds have stepped up in recent months to become one of the primary drivers of growth," according to ETF Database analyst Jared Cummans.