Warren Buffett might be warning of a Treasury bond “bubble,” but investors took their cues from the stock market Monday and fled to most government debt anyway.

The yield on the 10-year Treasury note dipped back below 3 percent as the Dow Jones industrial average sank below the 7,000 level for the first time in more than 11 years.

“The overriding concern was the stock market,” said Kim Rupert, managing director of global fixed income analysis at Action Economics. Investors are “just looking for capital preservation at this point.”

In his annual letter to Berkshire Hathaway shareholders released Saturday, Buffett wrote that “the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary” as the Internet bubble of the late 1990s and the recent housing bubble.

But many market participants believe the surge in Treasury prices is driven by economic fundamentals, and moreover that there are few other places to hide right now.

Treasury prices are indeed high, Rupert acknowledged, “but that’s because everybody continues to demand Treasurys. To me, a bubble is more of a speculative, almost irrational push into an investment. I think this is a very rational move into Treasurys.”

She cited ongoing problems in the financial sector, the worsening recession, and concerns that the U.S. government is “just throwing good money after bad, that there isn’t really a solution.”

On Monday, American International Group Inc. reported a $61.7 billion fourth-quarter loss and another $30 billion in funding from the U.S. government. AIG has now gotten $180 billion in federal loans.

Meanwhile, HSBC, Europe’s largest bank by market value, said it needs to raise $17.7 billion. The company reported a 70 percent drop in 2008 earnings and said it would cut 6,100 jobs.

In late trading, the benchmark 10-year Treasury note rose 1 10/32 to 99. Its yield fell to 2.87 percent from 3.02 percent late Friday.

The two-year note rose 5/32 to 99 30/32, and its yield fell to 0.90 percent from 0.98 percent.

The 30-year bond rose 2 1/32 to 97 24/32, and its yield rose to 3.62 percent from 3.71 percent.

The three-month Treasury bill’s yield rose to 0.27 percent from 0.25 percent. The discount rate was 0.28 percent.

The cost of lending between banks rose marginally. The British Bankers’ Association said the London Interbank Offered Rate, or Libor, on three-month loans in dollars edged up to 1.27 percent from 1.26 percent.

Copyright 2009 AP