(Bloomberg) -- The strengthening U.S. economy is proving no deterrent to the biggest rally in Treasuries since 2008, and America's largest bank says it may get even better for bond investors.

U.S. government debt has returned 8.9 percent this year, including reinvested interest, Bank of America Merrill Lynch indexes show. That compares with the 1.8 percent gain in the Standard & Poor's 500 index of stocks when dividends are included. The rally in Treasuries accelerated since October even as reports showed improvements in everything from consumer confidence to jobless claims to manufacturing.

While government debt usually suffers as a strengthening economy spurs inflation and encourages investors to take bigger risks with their money, this recovery has been different because Europe's sovereign debt crisis has elevated the stress in the global financial system, bolstering demand for the safest assets. Strategists at JPMorgan Chase & Co. say 10-year Treasury yields, which ended last week at 2.06 percent, may fall toward the record low of 1.67 percent by the end of March.

"As the concern around the euro zone continues to worsen, the money is flowing into the U.S.," Terry Belton, the global head of fixed-income strategy at New York-based JPMorgan, the biggest bank by assets, said in a Dec. 7 telephone interview. "Even though U.S. Treasuries are rich, at least you know what you have when you buy them, as they are dollar denominated."

The dollar has appreciated 8.5 percent since its low this year on Aug. 1, according to Bloomberg Correlation-Weighted Indexes, which measure the currency's performance against the euro, yen and seven of its other major developed market peers.

Cumulative outflows from the euro last week were twice the average in the same period last year, according to Bank of New York Mellon Corp., the world's largest custodial bank, with more than $26 trillion in assets under administration. The firm doesn't provide specific figures.

"Europe is the tail wagging the dog," Dominic Konstam, head of interest-rate strategy at Deutsche Bank AG in New York, one of the 21 primary dealers of U.S. government securities that trade with the Federal Reserve, said in a Dec. 7 telephone interview. The European crisis has led traders to price in more risk to measures of health in the financial system which "haven't gone away" even with efforts of policy makers, he said.

Yields on 10-year notes rose three basis points, or 0.03 percentage point, last week to 2.06 percent, according to Bloomberg Bond Trader prices. The benchmark 2 percent security due November 2021 fell 8/32, or $2.50 per $1,000 face amount, to 99 14/32. The yield was four basis points lower at 2.03 percent as of 10:36 a.m. London time today.

Yields have fallen from 2.42 percent in October and are below the average of 6.83 percent since 1980 as Europe's debt crisis, which led to the bailouts of Greece, Ireland and Portugal, threaten to engulf Italy and Spain. Yields on 10-year bonds of Italy, which has more than $2 trillion of debt, ended last week at 6.36 percent, up from the low this year of 4.52 percent in February and above the average of 4.46 percent since 2000.

The European Central Bank cut its main interest rate twice since early November, to 1 percent from 1.5 percent, and the region's leaders unveiled a plan last week for a closer fiscal union to save their single currency. They agreed to add 200 billion euros ($267 billion) to their rescue fund and to tighten rules to curb future debt. They accelerated the start of a 500 billion-euro rescue fund to next year and reduced demands that bondholders share in losses from rescues.