Goncalves said the 10-year yield could fall as low as 1.5, but he expects it to hold 1.6 percent if U.S. economic data, especially the May government jobs report on Friday, continue to hold up. Stocks were down more than a percentin midday trading.

Goncalves said the low 10-year is also the result of European institutions seeking an alternative to the German bund, which is also yielding a record low 1.26 percent.

“Spanish default risk is higher today,” said Brown. “We saw their 10 year exceed 6.6 percent, knocking on the door soon of that 7 percent level that led Greece, Portugal, Ireland to get aid from the EU and the IMF.”

Brown said the big drop in the euro from a recent $1.32 to below $1.25could continue, and that would draw more investors who fear currency losses overseas into Treasurys

“It all suggests the U.S. is a pretty decent place to put money, even with growth of 2 to 2.5 percent. It seems predictable and sustainable, at the same time, and the currency doesn’t seem like it will lose value so even though you get minimal return, and even negative return, after inflation, it makes sense for global investors to go into the 10-year,” Brown said.

Markets have been concerned that Greece, facing an election June 17, would select candidates that would ultimately take it out of the euro zone. The big fear was that Greece’s exit would be sloppy, creating bank runs in other weak sovereigns and ultimately resulting in a breakup of the euro zone.

European officials should do something similar to the quantitative easing carried out by the Fed, and they are instead tackling the problem with a piece meal approach, said Goncalves. “They need to have a counter punch of massive size now…they were doing small can kicking. Now they need to really punt the big can,” said Goncalves.

Follow Patti Domm on Twitter: @pattidomm

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