Fears of govt bond bubble are unfounded

ON BONDS

Fidelity's Ian Spreadbury expects flat returns from government bonds in 2011.

Commentators suggest government bonds are in bubble territory on the basis yields are low by historical standards. We disagree. We expect flat returns from government bonds over the next 12 months based on a combination of technical and cyclical factors. In terms of technicals, supports remains for government bonds. Foreign demand is likely to stay strong as currency reserves continue to grow in emerging economies and the balancing of growth drivers has yet to materialise. Sovereign stress in peripheral Europe may spur re-allocation towards government bond markets away from peripherals. ...