This month, yields on sovereign bonds have been on the rise.
Bonds with maturities of more than five years are reaching the levels seen when they hit highs in mid-May.
Analysis by Edmond de Rothschild shows that this is the case across countries.
Since the end of June, the average increase in 10-year government bond yields has been 18 basis points across major developed countries.
While the increase has been more pronounced in Europe, with an average rise of 25 basis points over the month.
Edmond de Rothschild puts this down to two main factors: a rebound in inflation premium as oil prices rose 3 per cent in the month, and the “credibility of fiscal policies” particularly in Europe.
From Edmond de Rothschild’s view, long-term rates on sovereign bonds are likely to move higher rather than lower.
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For this reason it is taking an underweight position in favour of corporate bonds.
Analysis from the firm read: “In the short term, a more prolonged decline in oil prices could have a disinflationary effect, which might limit the rise in government bond yields.
“However, the risk premium is likely to remain high as public finances continue to deteriorate.
Next week, investors in the UK will have a close eye on the first actions of incoming prime minister, Andy Burnham, who will take up the top job on Monday (July 20).
tara.o’connor@ft.com
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