Bonds

financial markets

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Rout in DM government bonds to reverse before long

We expect the sell-off in DM government bonds to unwind over the coming year or so as energy prices drop back and most central banks tighten policy by less than is now discounted, generating good returns from bonds. We think corporate bond spreads will widen markedly given our view that the AI stock market boom will turn to bust, especially given that huge AI-related bond issuance has increased the direct exposure of that asset class to AI. And we think souring risk appetite will also put upwards pressure on bond yield across EMs, contributing to them underperforming their DM counterparts.