Despite the fluctuating fortunes of credit and equity markets, the trend has been all one way in sovereign bond markets since the start of the year.The Australian Office of Financial Management's latest Treasury indexed bond auction last week saw A$100 million of the three per cent 20 September 2025 indexed bonds sold at a weighted average yield of just 1.0156 per cent.A total of 57 bids were received by AOFM for the bonds but only 22 bids were accepted. The coverage ratio was 5.47 times the value of the bonds on offer.Why should so many investors be so eager to receive so little?Part of the explanation is that the bonds are inflation linked. So the yield that will be earned is the real yield, to which the inflation rate over the life of the bond must be added.With inflation running at three per cent at present, the nominal yield on the bonds is more than 4.0 per cent per annum.This doesn't sound like a lot but it is higher than the current nominal ten-year government bond yield of 3.4 per cent per annum. The auction result also needs to viewed in the context of what has been happening with Treasury indexed bond yields over the last 12 months.Yields were rising in the second half of last year as global markets anticipated the tapering of quantitative easing, and local analysts were sure that the RBA was not far from raising the cash rate. However, yields started falling again in the first half of this year as expectations of a cash rate rise turned into expectations of another cut.The performance of the local economy has been too weak to support a rise in the cash rate and continuing global economic weakness combined with rising geopolitical tensions in eastern Europe and the middle East, have again driven investors into the safety of AAA rated sovereign bonds, especially Australia's relatively high yielding bonds.