The fall is largely due to concerns about US growth. The economy expanded at a disappointingly slow 2.5 per cent annualised rate in the first quarter, and business surveys in the New York, Philadelphia and Chicago areas have all recently pointed to economic activity slowing down.
Bonds have been further boosted by news from the eurozone that inflation was falling even before the recent drop in commodity prices. Eurostat reported this week that inflation fell to 1.2 per cent in April, putting it on course to undershoot the European Central Bank's forecast of 1.6 per cent. Although few expect outright deflation soon, the possibility of very low inflation is helpful for bonds.
Economists don't attribute the latest fall to quantitative easing, as yields have fallen as much in the UK and Germany, where central banks aren't (yet) buying government bonds, as they have in the US. Nor do they believe that buying by Japanese investors discontented with nugatory yields on their own government's bonds has played a major part in the rally.
Dan Morris at JPMorgan Asset Management warns that the rally "is likely to reverse". He thinks yields are "too low relative to inflation". And any good news about global growth would cause investors to switch from bonds to shares. "Equities are still about the only game in town," he says.
But others believe that big risks, especially in Europe, could keep bond yields low. David Owen at Jefferies International fears the eurozone is heading for the sort of liquidity trap that Japan suffered in the 1990s, in which monetary policy can do little to boost growth. Japan's experience shows that this would keep bond yields low even in the face of high government debt.
And Leigh Skene at Lombard Street Research fears that the region is "in economic, financial and social collapse". He says "recession/depression will continue until the euro does break up". This prospect too would help sustain demand for relatively safe assets such as better-quality government bonds.
