Government bond yields to edge higher

Government bond yields will rise but investors should not expect a sharp jump in borrowing costs according to Paul Brain, manager of the Newton Global Dynamic Bond fund. On the outlook for government bonds, Brain said: “With yield curves already steep and central banks reiterating their ‘lower-for-longer’ bias amid subdued inflationary pressures, a further sharp jump in borrowing costs would seem unlikely. As such, issues of short-to-intermediate maturity are attractive.”

Brain added that high yield credit remains attractive. He said global growth and greater clarity over Fed tapering should help shorter-dated hard currency debt from emerging markets. But he added that with continuing capital outflows, imminent elections and the need for structural reforms, the prospect of volatility remains.