First, there was the Great Recession.

The world's economy just about imploded. Faith in financial markets became close to nonexistent. Mattresses got filled up.

Everyone's favorite investment? U.S. Treasury bonds, even after Standard & Poor's downgraded U.S.government debt for the first time ever. In fact, they got more buyers, after that, in a rush to "quality."

In mutual funds, it's been the bond fund that's been the belle of the ball. Bill Gross' Total Return Fund, in fact, is the world's largest mutual fund. All based on bonds. Now, $285 billion in assets.

Since the start of 2007, investors have placed $1.2 trillion into bond funds of all types, according to Investment Company Institute numbers. By contrast, investors have pulled $607 billion out of stock funds.

Now, we could be, however, on the cusp of a Great Rotation, in the words of Lipper analyst Matthew Lemieux. A rotation out of bond funds into stock funds (See "Stock Funds Hope For a Bigger Bang,'' page 1).

That may not be so surprising, when the yield on T-bonds is still under 1% for issues maturing from now until 2018. And under 2% through 2024.

After all, if you had the courage to put $100,000 into a fund that passively tracked the Standard & Poor's 500 at its trough in early 2009, as the credit crisis roared, you'd be happy today. You'd have $218,000 or so.

Which shows just how much nerves play into long-term investing for mainstream investors. Fear of losing money far outweighs the willingness to believe the world is not ending - and that there's a future ahead.

Bonds have enjoyed a great 30-year run. By some counts, they're returned 20% a year, for the last decade, in their bull run, between price and yield.

Bond funds now account for 26.6% of the $12.8 trillion held in mutual funds, according to ICI stats.

That means a "rotation" back into securities based on ownership in the bottom line prospects of publicly traed companies will be the signal event of this century, so far. Sure, two weeks of great inflows for stocks is not likely to represent the bursting of any bubble in bonds.

But as Eusebio Diaz Morera, the chairman of EDM Asset Management in Europe, says, this is "a risk that is undervalued by the investing public."

And that may "appear quickly and painfully."

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