The drop in a key interest rate to a 66-year low is a sign of one thing _ fear.
Traders don't actually think a Treasury note paying 1.62 percent is a good investment. They just trust Uncle Sam to keep their money safe if Europe falls apart.
"When people just want to get their money back, there's not a lot of competition," said Bill O'Donnell, head of U.S. Treasury strategy at the Royal Bank of Scotland.
The benchmark 10-year Treasury note fell Wednesday to its lowest level since November 1945 as worries about the European debt crisis roiled markets worldwide. Investors sold off stocks and plowed money into government bonds that are considered safe.
The search for hiding places was spurred by news out of Spain, the latest trouble spot in the region's debt crisis. The European Central Bank said Spaniards pulled billions in deposits out of their banks last month, raising concerns of a larger bank run.
The yield on the 10-year Treasury dropped to 1.62 percent, a steep drop from 1.74 percent late Tuesday. Rising demand for bonds pushes their yields lower.
When banks or big investors get frightened, their concern is no longer about making more money, O'Donnell said. They just want to avoid losing it. That's why traders on Wednesday bought German government two-year notes paying 0 percent, he said. They're simply handing their money over for safekeeping.
"People still have faith that they'll get their money back from the U.S. government," said Ira Jersey, U.S. interest rate strategist at Credit Suisse.
For the federal government, that trust means it can borrow at rock-bottom rates even as debts pile higher. Total federal debt now sits at a record $15.7 trillion. But it cost the government more to borrow when debts were lower. The 10-year yield has averaged 4.7 percent over the past 20 years.
The trend of higher debts and lower rates runs counter to an argument often heard in Washington. Certain Republicans often argue that rising federal debts will turn the U.S. into another Greece. Greece's shrinking economy and deep debts have pushed the unemployment rate to 21.7 percent and 10-year interest rates to 26 percent.
But the workings of the U.S. government bond market often break the economic law of supply and demand. Treasurys have plenty of unique advantages, including the world's biggest buyers, foreign central banks that don't play the stock market but need a safe place to stash money.
Size matters, too. The U.S. economy remains the world's largest, which means there's commerce to be taxed, O'Donnell said. If needed, the government could raise money by eliminating deductions, closing loopholes and adopting other reforms.
"With a few strokes of the pen, we could get our debts down by paying our taxes," he said. "There's something to tax, unlike other countries."
At $11 trillion, the U.S. government bond market dwarfs those of other countries, which makes Treasurys the easiest security to buy and sell in a hurry. Daily trading of Treasurys runs at $523 billion, roughly 17 times higher than trading in German bunds.
For the average American, the drop in Treasurys yields could mean even cheaper mortgages. The 10-year rate acts like an anchor for borrowing costs throughout the economy, and its plunge has knocked 30-year mortgages to record lows for four weeks in a row.
Last week, Freddie Mac said that the rate on the 30-year loan dipped to 3.78 percent, the lowest since long-term mortgages began in the 1950s. But the same fear that's shaking financial markets is likely to undermine Americans' confidence in the economy.
"Mortgage rates might go down," Jersey said. "But so will the appetite to buy homes. When the world is falling apart like this, confidence is likely to be hampered."
In other Treasury trading Wednesday, the yield on the 30-year bond dropped to 2.73 percent, down from 2.85 percent the day before. Its price jumped $2.50 for every $100 invested. The two-year Treasury dropped to 0.28 percent from 0.30 percent.
The three-month T-bill paid a yield of 0.07 percent.