The yield on the 10-year U.S. Treasury also rallied Wednesday, topping 2.48 percent and adding to Tuesday's 8 -month high.  The largest independent asset manager in Europe, Carmignac Gestion, is also taking profits in the government fixed income space, cutting exposure to peripheral debt and boosting short positions, or bets that yields will rise further on core German and U.S. bonds.  In the group's investment update for June Didier Saint-Georges, a member of the Carmignac's investment committee, said the prospect of resurgent inflation could complicate the Fed's goal of gradually normalizing its monetary policy, presenting a risk to fixed income markets that will have to be "actively managed".  "Against a macroeconomic backdrop where uncertainty surrounding inflation is becoming more of a concern than growth, managing our bond investments flexibility will be essential," Didier Saint-Georges said, who helps oversee around 60 billion euros ($67 billion) in assets under management.  "We are now factoring the Federal Reserve's reaction function into our strategy and expect the US yield curve to flatten. We are maintaining our corporate bond positions, mainly in the European financial sector," he added.  Read More'Unprecedented' volatility in bond markets: Goldman  Analysts at Societe Generale are also recommending clients to short the U.S. Treasury for the second half of the year, on expectations that the yield on the 10-year will rise 25 basis points by the end of 2015.  "Treasurys remain exposed as the U.S. soft patch comes to an end and global growth forecasts finally find their feet. But a 1994-type bond crash is not around the corner just yet," said rates & forex strategy at the bank, Vincent Chaigneau in a note to clients published Wednesday.  However, Chaigneau is not convinced European government bond yields will continue to push higher throughout the year.  "The euro bond sell-off is a buying opportunity over summer, but not beyond that," he added.
Investors have had to quickly get used to the recent spurt of market volatility and, with few assets offering a safe haven from the rout, investors are eyeing the vulnerable bond sector for direction.