It costs to be short of government bonds

BONDS

Currently, government yield curves are very steep - historically, a phenomenon that has forecast a recovery.

It actually costs to be short of government bonds right now. Let us look at different scenarios – if there is deflation, it is better to be long, as investors will benefit from the capital appreciation from falling yields. If interest rates were to rise, then the curve may flatten as investors price in weaker growth in the future. So not a bad situation to be in! Financial spreads – the levels of compensation to investors over gilts – are higher than average as risks are priced in. They are looking attractive on both an historic and relative basis versus non-financials. Financials have a...