10-year Treasury yield hit 2.58% record low. Is it a flight to quality or a Treasury Bubble?

That's right! 10-year Treasury yield has hit a new low of 2.58% today. This low level is virtually unheard of since early 2009.

So, is it a flight to quality, or a bubble in Treasury bonds? Or a consequence of the FOMC signaling QE2 program to keep monetary easing in place, with close to zero rates for an extended period of time.

To me, this Treasury rally sooner or later will run its course. Investors who fear deflation risks are parking their money in Treasuries in the present uncertain economic outlook. They may get burned if the recovery is sustainable and yields eventually rise. However, investors are preferring to suffer from small losses on Treasury holdings rather than sustaining huge losses in stocks and risky assets if economic outlook deteriorates or the Fed is unable to steer the economy. This risk aversion is known as Prospect Theory, which underlies much of behavioral finance.