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Suddenly, bonds don't look so safe

For the second straight day, investors seemed to dump their stocks in favor of just about anything else—except, unexpectedly, bonds.

All the major stock indexes—the S&P 500, the Dow Jones industrial average and the Nasdaq composite index—saw their third-straight trading day of selling on Wednesday. Meanwhile, gold climbed nearly 1 percent and the CBOE Volatility Index (the VIX) jumped nearly 2 points to 15.44.

Yet bonds, which often attract money in volatile markets, are strangely flat for the week. What's more, Treasurys sold off throughout the trading day Wednesday and closed at their low for the day. Yields on the benchmark U.S. 10-year Treasury note pushed up to 1.93 percent by market's close. Bond yields move inversely to bond prices.

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Many traders were taken aback that bonds sold off on the same day stocks fell precipitously.

"I thought we would get a better bid on bonds," Anthony Grisanti, founder of GRZ Energy, said on CNBC's "Futures Now." "It's very surprising that the bond market is reacting the way it is."

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At the start of the week, however, bond prices were rising even while equities were falling. Brian Stutland, chief investment officer at Equity Armor Investments, pins that move on the market changing its view of when the Federal Reserve will raise its interest rates.

"The recent rally in bonds, I think, is more the effect that people are saying 'Hey, the rate [hike] that the Fed is expecting to do may not even happen this year,'" said Stutland. "That's why you've seen the 10-year get below 1.9."

But Wednesday's selloff is a sign that speculators are once again second guessing themselves, according to one money manager.

"The latest Fed meeting notes showed they will not use a systematic approach to raising rates," said Chad Morganlander, portfolio manager at Washington Crossing Advisors. "That emboldened risk-taking last week because it pushed out forecasts. But now there's a feeling that may have been a misinterpretation. Upon further review, bond investors are reassessing when there will be a rate hike. It may be sooner than previously thought."

In the end, that means investors may have to go elsewhere to weather the storm in the equity markets.

"In terms of flight to safety, bonds are not the place you want to be," Stutland said. "You've got to look to own volatility. That's the hedge against stocks right now. That's why the VIX is up. Or something like gold. ... That's really the trade to hedge yourself out, to protect yourself against a selloff in the market."

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