In the past two week, stocks have stirred up a quiet summer with a roller coaster of extreme drops and gains. Yet U.S. Treasurys, which are commonly used as a safe haven in volatile market times, have been notably stagnant in comparison.
The U.S. 10-year Treasury yield fell briefly on the initial selloff, but has since returned to its same position from one month ago, while the Dow Jones industrial average, S&P 500 and Nasdaq Composite have all fallen more than 7 percent.
"Bonds should be rallying more than they are, and the fact that they're not tells you there are stronger forces [here]," Nicholas Colas of Convergex said in a phone interview.
That main force, Colas said, is the Federal Reserve.
Colas said the Fed can exercise much more control over interest rates than in the past, since it owns more than $2 trillion of Treasury notes and bonds.
Many investors have been watching the Fed's moves closely as they anticipate a potential rate hike for the first time in several years. The Fed has discussed raising interest rates as early as September.
"The basic risk a bond investor faces today is the Federal Reserve," Colas said. "There's a lot of reluctance to go out and buy longer-term bonds because you're flying into the headwinds of the Federal Reserve."
He said the market has also been affected by the potential selling of U.S. Treasurys by China, Saudi Arabia and Russia. As prices of commodities such as gold, copper and oil fall, commodity-dependent countries have been selling U.S. bonds for cash to manage their budgets, he said.
Jay Sommariva, senior portfolio manager of fixed income for Ford Pitt Capital Group, said that after investors realized that the current stock selloff isn't a repeat of the credit crisis in 2008, the bond market began to normalize.
Now, Sommariva said investors are likely waiting on the sidelines to scoop up stocks and bonds at cheaper prices.
"We see the stock market falling, and we see the bond market falling in concert," he said. "With those two opportunities, they may just be parking it in cash right now."