NEW YORK (CNN/Money) - A week after hitting their lowest level in more than 44 years, Treasury bond yields jumped again Tuesday in another sign the bond market's three-year rally may finally be over.

The rally's end, if it has come, could spell disappointment for investors who poured billions of dollars into bonds and bond funds over the last three years, during the stock market's worst slide since 1941.

Just as people lost money chasing overpriced stocks three years ago, they could for the first time since 1999 lose money in a bond market prized for its perceived safety.

"I think you have to be real careful buying bonds at these levels," said Bill Hornbarger, fixed-income strategist at A.G. Edwards.

Caution isn't evident. Some $12.6 billion in new money came into bond funds in January, according to the Investment Company Institute, a mutual fund industry group, after a record $140.3 billion poured into these funds last year.

Don Cassidy, senior research analyst at Lipper Inc., expects 2003 will bring another year of fresh cash flowing into bond funds even if stocks build on a powerful four-day run that began Wednesday and continued Monday, pushing the Nasdaq composite index further into the black for the year.

"People are going to be non-believers [in the stock market] for a while," said Cassidy.

Terrorism, international tension, tumbling corporate profits and a stumbling economy have created a near-perfect world in the $5.4 trillion bond market, where yields fall as prices rise. A week ago, on Monday, March 10, the yield on the 10-year Treasury note fell to 3.566 percent, its lowest closing level since August 1958.

March 10, of all days, also marked the three-year anniversary of the Nasdaq's peak above 5,048. That index has fallen 72.4 percent through Monday.

Some mutual fund companies have been warning about the risk of falling prices, and rising yields, in the Treasury market.

"Vanguard is concerned about both the 'irrational exuberance' exhibited for bond funds by some investors and their apparent lack of understanding of bonds and their associated risks," the company told its investors last year.

A profitable place to be since the start of 2000, the bond market has been risky of late. The yield on the 10-year-note rose to 3.88 percent Tuesday, up more than a quarter percentage-point from last week's record low, amid expectations for a short war with Iraq. President Bush threatened a U.S.-led invasion if Saddam Hussein does not leave the country by Wednesday.

So far, the stock market has been the beneficiary of the bond market selloff. Stocks Tuesday held on to their gains from Monday when a 3.6 percent rally narrowed the Dow Jones industrial average's 2003 loss to 2.4 percent.

Vanguard data show that a half-percentage-point gain in yields will mean a 2.01 percent decline in total bond returns. Further, a one-percentage-point gain in yields would cut total returns by 5.67 percent, while a 1.5-percentage-point-gain would erode returns by 9.17 percent. A 2-percentage-point drop would cut 12.50 percent from bond returns.

It's been a long time since bond investors endured losses like that. The Lehman Brothers Aggregate Bond Index returned 11.63 percent in 2000, 8.44 percent in 2001 and 10.26 percent in 2002.

The returns, which include the effect of coupon payments and gains in bond prices, total 1.05 percent so far this year through Monday.

John Lonski, an economist at Moody's Investors Service, expects yields will be higher six months from now, assuming a fast regime change in Iraq is followed by an improving U.S. economy.

But he allows that bond yields could also fall. "There's a good deal of uncertainty as to how much economic activity was lost by geopolitical risk," he said.

That's a key question among economists. Federal Reserve Chairman Alan Greenspan has said he expects economic improvement once any war with Iraq passes. The argument goes that companies that postponed hiring and spending decisions ahead of the war will spend and hire at war's end.

To that end, the Fed wrapped up its policy making meeting Tuesday by leaving interest rates unchanged. The Fed, which has been cutting interest rates since early 2001, has not lowered borrowing costs since November.

The rise in bond yields could actually stall economic growth by lifting some borrowing costs and slowing, or halting, the boom in mortgage refinancing. At the same time, higher yields could cap the stock market rally if investors gravitate back to better fixed-income returns.

As for the stock market, its recent gains could also become its biggest impediment. Richard Bernstein, the chief U.S. strategist at Merrill Lynch, advised clients to sell into stock market rallies like Monday's.

"We continue to believe that there is considerably more downside risk than upside risk to the equity market," Bernstein wrote.

While that could keep a lid on bond market losses, Peter Schiff, president of Euro Pacific Capital, envisions the unusual scenario in which both bonds and stocks fall.

"What will most likely occur is a long overdue loss of confidence in financial assets in general, particularly those denominated in U.S. dollars," Schiff said.

If that happens, investors will have more to worry about than bond market losses.