What this unlikely market love affair is telling us

If investors are looking for safety, why aren't they also seeking protection?

Over 2014 in general, and the past few weeks in particular, both the CBOE Volatility Index and 10-year yields have plunged. This is unusual because yields fall as investors buy Treasurys, while the VIX drops as investors pay less for S&P 500 implied volatility (or more generally, as they pay less for hedges on the S&P 500 as the chance of big moves is perceived to drop).

So while sliding yields are an indication of investors seeking safety, the VIX hitting a nearly seven-year low tells us that investors aren't willing to pay much at all for downside protection.

Read More Low market volatility—a plus or storm ahead?

"It's very unusual," said Brian Stutland of Equity Armor Investments. "My theory is that low bond yields keep people chasing stocks with better yields, and thus keep liquidity in the stock market going."

For Jim Iuorio of TJM Institutional Services, it's just another sign of the times.

"Under normal market conditions, we would expect the VIX to go higher as Treasury yields move lower. We are not, however, under normal market conditions. We've seen a global liquidity glut push money into both stocks and bonds. And this has disquieted the traditional 'risk on/risk off' environment."

Read MoreBond yields slip to multi-month lows; where next?

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

The point is that low bond yields and a low VIX are simply responding to different stimuli (both of which may be a consequence of a surge of global liquidity). There's not much reason for investors to expect volatility to rise, given that "realized volatility is just nothing," as Stutland puts it.

Meanwhile, with Spanish yields just above 2.8 percent, and German yields plunging to 1.35 percent, U.S. yields above 2.4 percent could look like a bargain.

Still, over the past few years, as "risk on/risk off" has reigned, we have not always seen assets responding to their own internal logic. Investors clamoring for safety would be expected to buy bonds and protection on the S&P 500 simultaneously. So the convergence between yields and the VIX could actually be a good sign for the health of financial markets.

"Bonds and the VIX are thinking separately right now," Stutland said. "There's no reason for them to move opposite, even though that is what you tend to see."

—By CNBC's Alex Rosenberg.

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