The world's most-influential bond market might just be inFrankfurt.

As speculation deepens that the European Central Bank (ECB) willstart quantitative easing just as the Federal Reserve ends its ownbond buying, Europe is gaining more leverage over investorsglobally as the specter of deflation in the region unleashesgreater demand for fixed income. The gravitational pull exerted byGerman bunds may blunt any jump in yields as the Fed moves to raiseU.S. interest rates for the first time since 2006.

None other than Bill Gross, who runs the world's biggest bondfund at Pacific Investment Management Co. (Pimco), said on Aug. 20the direction of 10-year German bunds sets the “tone” forinvestors. A day later, Citigroup Inc. cut its yield forecasts forU.S. Treasuries on weakening growth and inflation expectations inEurope after German yields fell below 1 percent.