Two reasons to be cautious on government bonds

ON BONDS

JOHIM's Jeff Keen believes persistent inflation and the end of QE2 will have a negative impact on government bond markets.

A number of well-known bond managers have adopted short positions in government debt. Perhaps then, ironically, we should not be surprised to have seen the US 30-year treasury bond rally 5% in the last few weeks. Financial markets have a nasty habit of humbling even the greatest investors. However, we have some sympathy with a cautious view towards government bond markets for two key reasons. Firstly, it seems clear inflation risks are on the up. The ECB has recently edged up rates in Europe, despite the ongoing fears of a sovereign default in the periphery, in order to dampen inflationa...