Trustnet Alpha Manager Gareth Isaac said both government and credit bond yields could quite easily fall further.
"Outside of the UK there is little inflationary pressure and central banks are likely to keep rates exceptionally low, especially while the recovery is at such a delicate stage," said Isaac, who co-manages a range of bond funds at GLG.
"Investors looking for yield may look further down the government and credit curves pushing yields down further still. There are some risks however, government balance sheets, in the western world continue to expand and at some stage investors may take flight, I think however that we would need to see a significant upturn in growth prospects before this were to happen," he continued.
Ignis's chief economist Stuart Thomson agrees yields will go lower during the next year.
"Economic recoveries from severe credit crunches are slow and hesitant as consumers, corporates and financial companies deleverage their balance sheet," he said.
"Growth below an economy's productive potential leads to widening output gaps, higher unemployment and deflationary trends. These pressures are likely to be compounded by pressure to tighten fiscal policy."
Meanwhile, Paul Thursby, co-manager of the Thames River Global Bond fund, said yields will be affected by the outcome of any quantitative easing (QE) decision.
"Bond yields will only fall appreciably further if QE is rolled out again and Treasuries purchased, this depends on size and timing but is to some extent discounted."
Craig Inches, fixed income manager at RLAM agrees that QE could force yields lower.
"Bond markets take their cue from the US Federal Reserve and on the back of weaker data, the Fed's view of the world has turned less positive. Therefore it is extremely possible that the US could embark on QE2.
This further stimulus would result in lower bond yields and would likely drag the UK with it," he said.
Predicting how low bond yields could go, the majority of managers believe this could be below two per cent.
"It is feasible that if we continue to see declining inflation and a slowdown in growth that 10-year yields in the US could fall below two per cent. Many are questioning whether the bond market is a bubble but if you take two per cent growth and 0.5 per cent core inflation inflation, a 2.5 per cent yield on a government bond is close to fair value. However if we witnessed a significant rise in either of those variables then bond yields would naturally move higher. This however is not our central scenario," said GLG's Isaac.
Ignis's Thomson said near zero official interest rates have not stimulated sufficient borrowing or economic growth implying that the economy is caught in a Keynesian liquidity trap.
Performance of LIBOR vs FTSE British Government GR 10 year TR in GB over 2-yrs
Source: Financial Express Analytics
"The solution to the liquidity trap is to drive down the term structure of interest rates to encourage risk appetite. This suggests that conventional spot 10-yr gilt yields will have to fall below two per cent over the next 12 months," he said. Despite the low yields fund managers are confident that the US and Europe will not end up in a similar situation to Japan in 1997.
"The US and Europe are not like Japan, there are no exclusive domestic savings base to cushion debt expansion past a year or so. They will print money and devalue their currencies, devaluation will re-price the solvency risk of debt build and make economies competitive," said Thursby.
While Isaac said there is risks that both fall into deflation over the coming 12 to 18 months.
"The de-leveraging we have begun to see has much further to go and that coupled with large output gaps and weak domestic demand will keep inflationary pressures low for some time. Central banks, especially the Fed, will fight any possibility of deflation rigorously through the printing presses. Further QE is a real possibility," he said.