Despite puny inflation-adjusted yields and a bear market for Treasury bonds since 2004, government bonds are making a big comeback over the last 12 months -- outpacing many stock indices.

Benchmark 10-year U.S. Treasury bonds have risen a cumulative 5.27% over the last 12 months versus 6.10% for the S&P 500 Index. And riskier bond categories, including emerging market debt has gained 9.17%. Even junk bonds, typically vulnerable to a slowing economy, have rallied 10.51% over the last 12 months.

But the bond rally is not a 12-month phenomenon, either.

As the S&P 500 Index struggles with a 2.2% loss in 2007, ten-year Treasury bonds have gained 2%, emerging market bonds are up 1.8% and junk bonds (high-yield) have risen 2.6%, hardly consistent with fears of a credit-crunch this winter amid the sub-prime loan crisis.

So what's an investor to surmise from this comparative asset-class snapshot?

To start, the market is not worried about a credit-crunch. It that was the case, risky debt like high-yield and emerging market bonds would have declined sharply since February 27. Also, mortgage-backed debt is up 1.5% in 2007, another indicator "supposedly" vulnerable to a credit-crunch.

I don't like emerging market bonds in 2007 because credit spreads remain near their all-time lows, making them a high-risk investment. And I don't care for junk bonds, either. However, I've liked U.S. Treasury bonds since last summer because I still think we're vulnerable to systemic risk, namely in housing, a hedge fund blow-up tied to mortgages or a sovereign borrower defaulting.

High quality bonds might not offer riches this year, but they'll probably match or exceed returns generated from stocks.