While many experts do not rule out rises of 0.5 per cent to 1 per cent this year as the “safe haven premium” unwinds somewhat, the consensus view is that steeper rises won’t occur unless interest rates rise – which is most unlikely to happen while economic growth remains so sluggish.
Vicky Redwood, chief UK economist at Capital Economics, says: “We don’t see gilt yields rising very sharply for a couple of years as interest rates are likely to remain low and US and UK demand for safe havens is likely to remain strong.
“We feel that the eurozone crisis is likely to flair up again and expect more quantitative easing in the UK and US, which will keep demand for bonds strong.”
So, while it is hard to get excited about government bonds, no-one should write them off until they can be sure that cash returns are going to rise.
Edmund Tirbutt is a freelance journalist
EXPERT VIEW
Johan Jooste, chief market strategist at Merrill Lynch Wealth Management EMEA:
Rising uncertainty and some signs of overheating in global equity markets may lead to a short-term market correction – given strong fundamentals relative to bonds, there is opportunity to use market weakness to buy equities “on the dips”. This view is consistent with the continuing, slow rotation away from fixed income markets and into equities evidenced by recent fund flows
