PUBLISHED: 26 JUL 2014 05:16:00 | UPDATED: 26 JUL 2014 05:22:57

FINANCIAL REVIEW KAREN MALEY

Global bond yields were the focus of attention this week as benchmark US rates tumbled close to their lowest levels in 13 months, prompting concerns that worldwide interest rates could be headed even lower.

Investors piled into US bonds – pushing the yield on benchmark 10-year bond yields below 2.5 per cent – after the International Monetary Fund issued its second downward revision for the US economy in two months and cut its growth expectations for 2014 to 1.7 per cent, the weakest annual forecast since the end of the 2009 recession. But the 10-year bond rate then climbed back above 2.5 per cent on signs the US labour market is still improving.

Many investors – who had been expecting long-term interest rates to rise as the US economy picked up steam – have been wrong-footed by the strong rally in US bonds this year, which has seen the yield on 10-year bonds drop to around 2.5 per cent from 3 per cent at the end of 2013. (Bond yields fall as bond prices rise.)