The downgrade of U.S. debt might have helped to send world stock markets reeling, but the target of the downgrade – U.S. Treasuries – showed impressive power Monday as a ‘safe haven’ in uncertain times.

Yields on Treasury Inflation-Protected Securities, and other Treasuries, should have risen on the downgrade – some experts predicted an increase of as much as 50 basis points. Instead, yields fell, pushing the TIP ETF up 1.21% to close at an all-time high of $115.

This one-day chart shows how Treasuries out-performed the overall bond market:

Normally, when the stock market plummets, it raises the specter of deflation, which tends to cause TIPS to under-perform overall Treasuries. That was true Monday.

But with Treasury yields so low, you might expect the overall bond market (which includes corporate bonds) to outperform with the appeal of higher interest rates. That wasn’t true Monday, because now there is a new fear: Recession, which could slam corporate profits.

Newly downgraded U.S. Treasuries are sitting at lofty levels, providing truly meager interest rates. The rate for a 10-year Treasury fell to a low of 2.33% on Monday, the lowest since January 2009. Here’s a nifty chart I found at TheAtlantic.com, which demonstrates how the S&P downgrade had a reverse effect, resulting in lower Treasury yields:

From the article by Daniel Indiviglio:

The louder S&P complains, the lower the yield on Treasuries. This is the opposite of what you might expect to see. The lower a yield, the higher the demand for a bond. Put another way, as S&P became more and more critical of U.S. Treasuries, investors were willing to pay more and more money for them.

From a Reuters report:

Treasuries benefited at the expense of risky assets including stocks, as investors maintained confidence that U.S. government debt may still be among the world’s safest assets, if no longer risk free. … “Treasuries are still a comparatively low-risk asset. I think there’s no doubt about that,” said Michael Schumacher, a strategist at UBS in Stamford, Connecticut.