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 proxy—is 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.
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 yields—many 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.