As stocks cratered yesterday following Treasury Secretary Tim Geithner’s plan to rescue the battered banking system, several segments of credit posted gains in a volatile session.

Treasury bonds, which have sold off heavily since the beginning of January, managed to rebound sharply yesterday in a flight-to-safety along with gold. Also, some segments of credit also rallied, excluding junk bonds.

The only part of the Treasury yield curve I like at this point is 1-3 year T-bonds, where yields are higher than T-bills and provide very low risk to principle. This is a good place to park some cash.

The longer end of the curve, still in a bull market, has been selling off viciously over the last four weeks on fears of rising Treasury debt issuance and worries that the Chinese and Japanese won’t continue buying significant amounts of U.S. debt. Combined, both countries hold about 45% of all Treasury debt and will undoubtedly reduce their Treasury purchases in 2009 amid plunging export revenues and narrowing trade surpluses.

Over the last several months I’ve been pushing high quality investment grade bonds, mortgage-backed agency debt and TIPS, or Treasury Inflation Protected Securities. I own these securities in my company's brokerage account. Each of these sectors recorded a net gain on Tuesday, with TIPS breaching their important 200-day moving average and confirming a bullish primary trend as investors climb aboard cheap inflation protection. Ten-year TIPS now project an annual inflation rate of 1.3% over the next decade – highly unlikely in the wake of monster U.S. budget deficits. In December, the same TIPS forecast 0.15% annualized inflation over the next decade.

Meanwhile, the rush to exit stocks was sparked by a disappointing deliberation by the new Treasury Secretary. The government remains reluctant to act as a buyer of last resort to clean up the bad loans and toxic assets hemorrhaging bank balance sheets. Geithner wants to share this expensive burden with the private sector; since nobody really knows what these things are worth investors chose the safer option – exiting the stock market en masse.

The market is looking for a one size “fits all” bank rescue plan from Treasury and failed to get that on Tuesday. The message from Treasury is that this whole process will take time, encounter risk and will cost a fortune before the market and the economy stabilize. Geithner left investors uncertain about Treasury’s intentions and, most importantly, abandoned the idea of creating a bad-bank to bundle toxic bank assets. That is not good news.

And so this credit crisis continues, now in its 19th month. There’s just no justification for buying stocks at this juncture when so much uncertainty lingers, clouded by declining real estate prices and skyrocketing unemployment. Until the market gets what it wants – action on segregating bad assets – stocks will remain a bad place to invest.