Among those caught off guard by the strong demand for Treasuries was Bill Gross, who runs the world's biggest bond mutual fund at Pacific Investment Management Co. In February, Gross had a net bet against Treasuries in the firm's flagship Total Return Fund, which has gained 3.3 percent this year, ranking in the 28th percentile of similar funds, according to data compiled by Bloomberg.

"This no-Treasury thing is simply a demonstration of vigilance on the part of Pimco that says these bonds aren't worth what others appear to think they're worth, and we prefer another menu, that's all," Gross said in an April 20 telephone interview.

Government and Treasury debt now make up 23 percent of the $241 billion Total Return Fund, according to data posted on Newport Beach, California-based Pimco's website Dec. 9.

Gross wasn't the only one surprised by the performance of Treasuries. The median estimate of 70 economists and strategists surveyed by Bloomberg in early January was for 10-year yields to end this year at 3.75 percent. FTN Financial had the lowest estimate, at 2 percent. For the end of 2012, the median forecast is 2.6 percent.

Steady Decline

Ten-year yields, which are a benchmark for everything from corporate bonds to mortgages, have been on a steady decline since 1981, when they exceeded 15 percent.

They were at 6.57 percent in January 1993 at the end of the elder Bush's presidency, down from 9.54 percent in early 1989 when he took office as the Fed cut its target rate for overnight loans between banks to 3 percent from a high of 9.75 percent in February 1989 as growth slowed. Yields have averaged 4.92 percent since Bill Clinton was sworn in as President in 1993.

The worst financial crisis since the Great Depression boosted the allure of Treasuries, as investors sought a haven amid a plunge in the value of higher risk assets such as stocks and corporate bonds. The Fed has kept its target rate in a range of zero to 0.25 percent since December 2008, and has pledged to keep there until mid-2013.

Bid-to-cover ratios at Treasury auctions averaged $2.99 in 2010, up from $2.50 in 2009 and $2.23 the prior year.

Accelerating Demand

Demand accelerated toward the end of the year, with investors bidding $3.20 per dollar of securities sold in November and December amid concern that the health of the European economy was deteriorating and that Italy may need a bailout.