Last month, many mutual funds and institutional investors piled into Treasurys, pushing yields down to zero for short-term bills and barely above two percent for longer-term debt. The feeling then was that it was better to keep what you had than to lose more money in stocks.
But with the new year, the sentiment has changed.
"You're seeing some bond investors make the judgment that things are a little better elsewhere," Larson says. "Why am I on the short end lending money for free and why am I on the long end when I'm accepting 2 percent for 10 years?"
With a huge government debt auction slated for later this week, the move out of Treasurys is likely to escalate—though that doesn't necessarily mean good news for stocks.
Bond prices slid again Tuesday as traders were scared away by the looming auction of $166 billion of debt this week, including an $8 billion offering of Treasury Inflation Protected Securities, or TIPS.
The influx of supply, necessitated by aggressive government rescue and stimulus programs, is apt to push value down for Treasurys and has investors looking for alternatives.
"The bigger issue that I see is the massive amount of money-borrowing—or in the case of the Fed money-printing—to support the economy," Larson says.
Indeed, 10-year Treasurys fell nearly a full point in price Tuesday to hit three-week lows. And even though that meant a mild gain for yields, which move in the opposite direction of prices, it still kept them remarkably low and far from an enticement especially with the boom in supply coming.
Exchange-traded funds, or ETFs, that track bond prices also are lower.
The iShares Barclays 20+-year Treasury Bond fund is off about 9 percent over the past two weeks, while the company's iBoxx High Yield Corporate Bond fund has moved in the opposite direction, gaining more than 18 percent since early December.
Still, that hasn't translated to stock market gains.
While the market posted a nice run last week, the rally faltered on Monday and was up modestly on Tuesday. There's widespread sentiment that until the economy stabilizes, stocks will continue to be unpredictable.