Take this jobs report and shove it! Bonds rally.

@lamonicabuzzApril 9, 2012: 12:49 PM ET
Bond yields may dip below 2% on fears about the job market and economy. But experts doubt the 10-year will fall as far as last September's all-time lows.

Bond yields may dip below 2% on fears about the job market and economy. But experts doubt the 10-year will fall as far as last September's all-time lows. Click chart for more on bonds.

NEW YORK (CNNMoney) -- So much for the bond bubble bursting.

In a bit of perverse logic, investors once again flocked to the "safety" of U.S. Treasury debt after a disappointing jobs report Friday.

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Traders scooped up long-term Treasuries Monday while stocks plunged. The yield on the benchmark 10-year note fell to about 2.02% Monday afternoon. That followed a drop to 2.05% in abbreviated trading Friday from a rate of 2.18% on Thursday. (Bond yields go down when prices rise.)

Sure, bonds are considered less risky investments than stocks. But it is still curious that investors enthusiastically lap up government debt every time a new piece of data comes out that suggests the U.S. economic recovery is on shaky ground.

What's more, the Federal Reserve's latest bond buying program, Operation Twist, expires at the end of June. The Fed has been selling short-term bonds in exchange for longer-term Treasuries. That has lent support to the bond market since the Fed has been viewed as a buyer of last resort.

But despite the weak March jobs number, many experts said they don't think the Fed will extend Twist or launch a third round of so-called quantitative easing, or QE3. Through QE and QE2, the Fed simply bought more long-term bonds, adding to its balance sheet in the process.

It's a stunning turn of events in the fixed-income market that underscores just how fragile the U.S. economy still is. It was only a few weeks ago when bond yields were as high as 2.4% and some experts were nervously wondering if this would be another 1994 -- a year when long-term bond yields moved violently higher.

The numbers behind the jobs recovery

That seems less likely now as the addition of only 120,000 jobs in March has economists worried anew about a prolonged period of economic stagnation. But not stagflation. This is key.

Even though oil prices have surged, hurting consumers at the gas pump, inflation is still not much of a threat. And that is why bond yields have remained near historic lows. As long as equity investors continue to fret about a pause in the economy's momentum, bondholders may benefit.

"Most of the things that you would think would be bad for the Treasury market seem to be weighing disproportionately on stocks instead," said Robert Tipp, chief investment strategist for Prudential Fixed Income in Newark, N.J. "The only scenario that's damaging for Treasuries these days would be unbridled optimism for the economy."

With that in mind, Tipp said he thinks that a 2% yield on the 10-year is fair value. He added that the continued debate over the deficit in Washington may also keep a lid on how high yields go. It's even possible that rates could head back toward the all-time lows of around 1.7% from last September.

Again, it's a bit of twisted argument. But if lawmakers wind up stalling further, refusing to put the good of the country ahead of politics as usual, inaction in Washington could hurt the nation's economy severely.

Businesses and consumers could pull back on spending, citing more "uncertainty." That, however, would be music to the ears of bond investors. Keep in mind that Japan's economy has been in a rut for decades and yields on Japan's 10-year bonds are below 1%.

"The federal government, through an inability to arrive at important decisions, could bite several percentage points out of economic growth next year," said Tipp. "I hope we don't get back to the lows, but considering the headwinds it's possible."

Guy LeBas, chief fixed income strategist with Janney Montgomery Scott in Philadelphia, doesn't think rates will get that low again. But he doubts yields will head much higher either. He said that Friday's jobs report calls into question just how strong the economy really is.

"The rubber band has snapped back. It would take a material improvement in economic conditions that does not seem to be forthcoming to get bond rates to move much higher," he said.

Obama's jobs countdown

Investors should not ignore Europe either. Spanish bond yields perked up last week following a lackluster bond auction. That reminded investors that the PIIGS debt crisis is still, unfortunately, alive and well.

And as long as Europe's economy is in worse shape than America's, foreign investors may still have many reasons to favor Treasuries over any European bonds -- save maybe for German bunds.

"The problems in Europe are not over. I am kind of surprised with how complacent people had gotten," said Leslie Barbi, head of fixed income for RS Investments in New York. "Treasury yields could stay around these levels for some time."

Still, where rates ultimately go will all depend on what happens to jobs growth for the next few months.

John Donaldson, director of fixed income with Haverford Trust in Radnor, Pa., said rates could inch back toward the year-to-date lows of 1.85% if there is more bad data from the labor market.

"We need jobs gains to pick up to prove to the market that 120,000 jobs added was an aberration and not a trend," Donaldson said.

However, Donaldson thinks rates could also just as easily top 2.4% and head closer to 3% if the economy consistently started adding 200,000 jobs a month again.

"Rates may be too low right now and they could head higher. But they will not gallop away by any stretch of the imagination," Donaldson said.

And unless rates "gallop away," long-term borrowing costs should remain pretty low in the U.S. Even at 3%, rates would not be that high by historical standards. Barbi said she thinks the yield on the 10-year should realistically be above 3% based on the actual fundamentals of the U.S. economy.

But she added that "special factors" -- namely Europe's debt crisis and an extremely accommodative Federal Reserve -- will continue to keep rates this low. Even if the Fed doesn't do QE3, it's not going to be in a hurry to tighten monetary policy either.

"The Fed is not going to unwind its balance sheet anytime soon," Barbi said.

Best of StockTwits: You've got sale! AOL (AOL) surged more than 40% Monday after Microsoft (MSFT, Fortune 500) agreed to buy more than 800 AOL patents for nearly $1.1 billion.

bpeck: Fantastic deal for $AOL - really showing focus on the asset value of the company and mgmt focus on shareholders.

BryanMortenson: Selling your patents is the new "unlocking the conglomerate discount".$AOL

It's hard to argue with that given the huge bump in the stock Monday. But what does the company do next? There are still a lot of questions about the long-term viability of AOL's business. I discuss that more in today's Buzz video.

mohannadaama: With $YHOO search deal & now with $AOL patents, $MSFT cleverly snaps crown jewels without buying a fading empire.

In hindsight, Microsoft must be thrilled that it was able to pull off both of these deals without having to acquire either company. But poor Yahoo (YHOO, Fortune 500). It did have the chance to sell out to Microsoft in 2008 and repeatedly turned the offers down.

herbgreenberg: Excellent point by money mgr to me in wake of $AOL selling patents to $MSFT: Makes $YHOO look bad for suing $FB over patents!

My fingers get tired from typing "poor Yahoo" over and over again. But its battle with Facebook does seem a bit odd. On the one hand, It's admirable that it is eager to defend its patents. But at what cost?

AOL should be given credit for cashing in on its intellectual property. You'd have to think disgruntled shareholders may want Yahoo to do the same.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks. To top of page

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