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The average yield among securities in the Bank of America Merrill Lynch World Sovereign Bond Index dropped to 1.59 percent at the end of last week, the lowest level since May 2013. Yields fell to record lows from Germany to Italy, as Australia’s 10- year rate declined below 3 percent today for the first time in two years. Interest rates remaining low as central banks battle slow inflation will be the main macroeconomic theme next year, Morgan Stanley said in a report.

“There is a lack of impetus to sell developed markets because you’re seeing disinflation in most of the major markets,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment banking unit in London. “There are still concerns about the sustainability of the global recovery.” Yields are likely to remain subdued, Green said.

The benchmark U.S. 10-year yield was little changed at 2.18 percent as of 7:01 a.m. New York time, according to Bloomberg Bond Trader data. The rate fell to 2.16 percent on Nov. 28, the lowest level since Oct. 21. The price of the 2.25 percent note due in November 2024 was 100 21/32.

Yields Decline

German 10-year yields dropped to as low as 0.69 percent, Italy’s reached 2.005 percent and rates on similar-maturity Austrian, Belgian, Dutch, Finnish, French and Irish bonds also touched all-time lows.

Australia’s 10-year yield fell as far as 2.98 percent, the lowest since October 2012. Japan’s five-year yield declined to 0.095 percent, matching the all-time low set in March 2013.

The Bank of America World Sovereign Bond Index has returned 7.8 percent this year, headed for its best annual performance since the global financial crisis of 2008 pushed the U.S. economy into a recession.

U.S. crude oil fell below $65 a barrel today to the lowest level since July 2009 after the Organization of Petroleum Exporting Countries kept its production ceiling unchanged last week even as global demand fails to keep pace. Prices have fallen more than $40 a barrel since June.

“There’s a decrease in inflation pressure and inflation expectations,” said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank. “It’s supporting the bond market globally.”

Shimazu said he’s considering cutting his year-end forecast for 10-year Treasuries of 3 percent.

Global Economy

Chinese manufacturing slowed for a second month in November, according to a government report today. Euro-area inflation slowed in November to match the least in five years, data last week showed. Japan’s economy has contracted for two quarters.

Treasuries may pause following a six-day rally before reports this week on manufacturing and jobs, said John Gorman, the Tokyo-based head of dollar interest-rate trading for Asia and the Pacific at Nomura Holdings Inc. The company is one of the 22 primary dealers that trade directly with the Federal Reserve.

“It wouldn’t surprise me if we come off a touch,” Gorman said. “There’s a lot of data out there that’s still very supportive of the U.S. economy.”

The Labor Department’s monthly employment report Dec. 5 will show the U.S. economy added 228,000 jobs in November, versus 214,000 in October, based on a Bloomberg News survey of economists.

Output Slows

The Institute for Supply Management factory index due today slid to 58 from 59, another survey shows. October’s figure matched the highest level in 3 1/2 years.

Markit Economics will say today that its own U.S. manufacturing index fell, based on responses from economists. The company is updating an initial estimate.

The bond rally in response to falling oil prices is misguided, according to Sean Keane, an analyst in Auckland at Triple T Consulting.

Lower crude costs will eventually act as a stimulus to the global economy, Keane wrote in a report Nov. 28. The bond market reaction will probably end up being wrong, he wrote.

The Fed’s preferred gauge of inflation has failed to increase more than its goal of 2 percent for 30 consecutive months.

Inflation Outlook

The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, shrank to as little as 1.789 percentage points today, the narrowest in three years.

Globally, bond investors anticipate consumer prices will rise an average 1.18 percent a year, based on yields of government debt for developed nations included in indexes compiled by Bank of America Corp. Inflation expectations were almost twice as high in 2008.

“The dominant macro theme in 2015 will be central banks’ battle against lowflation -- excessively low and economically harmful inflation that has become pervasive across the global economy,” Joachim Fels, Morgan Stanley’s London-based chief global economist, wrote in a report yesterday. “We expect central banks to pick up the gauntlet and fight back against lowflation with further monetary accommodation that will keep interest rates low and global liquidity ample throughout 2015.”

The Fed will raise interest rates early in 2016, according to Morgan Stanley, which is also a primary dealer that trade directly with the U.S. central bank. Policy makers have kept their target for overnight lending between in a range of zero to 0.25 percent since 2008.

The implied yield on 30-day fed fund futures contracts show investors expect the rate to be 0.545 percent in January 2016.