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Bond yields slip to multi-month lows; where next?

Yields on global sovereign bonds may be dropping as investors pile into the asset class, but strategists are split on whether to expect either a further move lower or the U.S. going it alone and moving in the opposite direction.

David Woo, the head of global rates and currencies research at Band of America/Merrill Lynch Global Research, believes that 2014 is proving to be one of the most difficult for bond investors. Speaking to CNBC on Thursday he said he believes China—using Belgium as a proxyis buying U.S. Treasurys in large quantities which is offsetting the Federal Reserve's "tapering" of its bond-buying program.

"Effectively there is no tapering," he said, adding that he expected the next big move for fixed income markets would be when these Chinese buyers stop buying.

Read MoreThis is what is keeping bond yields low

The move in bond yields has been one of the surprise stories of 2014.

With the Fed scaling back on its $85 billion-a-month bond-buying program - which had previously suppressed yieldsmany expected a move higher. But, after stalling at the 3 percent level, U.S. benchmark yields have slipped back below 2.5 percent. This is due to a variety of reasons: Central bankers from the U.K., Europe and the U.S. have struck a decidedly dovish tone, geopolitical tensions in Ukraine has given bonds their "safe haven" status back and concerns over growth and low inflation have reinforced the trend down.

Traders at the CME Group's Chicago Board of Trade
Tim Boyle | Bloomberg | Getty Images
Traders at the CME Group's Chicago Board of Trade

Benchmark 10-year U.S. Treasury yieldswhich move in the opposite direction of bond pricesdropped even lower on Thursday, hitting 2.4219 percent by 9 a.m. London time. This came after a sharp drop on Wednesday, sparked by a disappointing rise in German jobs numbers. German bunds and U.K. giltswhich have had increased focus from international investorsare trading near the 10-month lows set earlier this month and Japanese 10-year yields have fallen to one-year lows.

Read MoreBond market in lull, but are yields bottoming?

The yield on the U.S. 10-year is now at its lowest level for 11 months and if it falls below 2.415 percent, it will be the lowest level since June 2013.

However, standing in its way are three different technical trading levels at 2.41 percent, 2.40 percent and 2.38 percent, according to Peter Chatwell, a fixed-income strategist at Credit Agricole. If these barriers are broken, then that would put the U.S. bond market back into the August 2011 to June 2013 range, he added.

"We still believe that a sustained divergence between the (Europe and U.S.) markets is justified, but right now the U.S. market is enjoying a resurgence, with no U.S. data really proving strong enough to contradict it. We are expecting the 10-year U.S.-Germany spread to remain wide (wider than 100 basis points) through to (the second half of 2015)."

Read MoreWhy tapering didn't push up bond yields

While some banks like Credit Agricole believe that the U.S. bond yields could break back higher and diverge from European yieldsespecially with the European Central Bank expected to enter the market next week - some analysts predict U.S. yields could stay low for a good while longer.

"(U.S.) bonds are going to continue to surprise on the downside in terms of yield," John Lonski from Moody's Capital Markets Group told CNBC on Thursday. Commodities investor Dennis Gartman wrote in his daily research note that those short bondsbelieving their price would go down and the yield would go up—have got it "badly wrong."