Bond prices, bond yields

Have you seen the yields on T-bills lately? Last time I checked, you could get yourself a 1/4 of 1% yield, which is also called "25 basis points." Why would anyone accept such a low yield? It's called a "flight to quality." When the stock market started to plummet around September, investors did what they usually do--they panicked. They pulled their dollars out of the stock market and lined up for a chance to buy Treasuries. The more willing investors are to pay for quality, the higher they drive the price of the T-bills, T-notes, and T-bonds. A T-bill is purchased at a discount from its face value. If you buy a $1 million T-bill, you'd prefer to buy it for $960,000 to a price of $999,400. When rates are high, you can make the $40,000 difference; when people are scrambling to put their money in T-bills, suddenly, you can make only $600 on your $1 million. So, the herd mentality doesn't just trample the stock market; it also messes with the bond markets. Mortgage rates are related pretty closely to the yield on 10-year Treasury notes, so as investors scramble to buy the government-guaranteed T-notes, they also push down yields, which then pushes or keeps down mortgage rates.
Why would interest rates start rising again? When the folks currently wimping out in Treasuries suddenly decide that the economy is about to take off again, they'll start pulling money out of the bond markets in order to buy stock. If they really want to sell the bonds, they'll accept lower and lower prices, which is the same thing as saying that the bonds will start trading at higher and higher yields.
I'm not sure why people panic so much over current interest rates or stock market levels. Most economic situations are a good news-bad news scenario, anyway. If yields are down now, that is bad news for the fixed-income retiree earning 2% on her bank CD if she's lucky. However, it also keeps mortgage rates down, which should eventually bring buyers back to the housing market. If mortgage and other interest rates creep back up, that will push down home values, but then the fixed-income retiree may be able to earn 6% on her bank CD and 9% on a T-bond. In any case, the "bond see-saw" is more than just something to draw on your scratch paper at the testing center.