We do not believe there is a bubble in government bond markets. Yields are low and bond prices high, but these levels can readily be justified by the outlook for the usual fundamentals that determine the level of long-term interest rates: the prospect of a prolonged period of near-zero official interest rates and of low or even negative inflation, alongside a sustained economic downturn that will reduce the appeal of alternative assets (including equities, corporate bonds, property and commodities).
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