Ten year Treasury bond yields shrugged off the latest US economic data, durable goods orders, and look tantalisingly close to falling below 4 per cent. That baffles the bond bears, who expected yields to be 5 per cent by the end of 2005.

But might the bond markets be rational? Eric Lonergan, the Cazenove strategist, says bond investors watching the US economy are looking in the wrong direction. “There are increasing signs of global integration at the long end of the bond market” he says. “Bank of International Settlements data suggests Japanese banks were the biggest buyers of global government bonds in 2004.”