FTAdviser.com

Advertising

The investment manager said spreads were only 20 basis points above their real-term historic lows after developed-world government debt benefited from the recent flight to quality.

However, Investec said the outlook for interest rates made European government bonds more attractive than their North American counterparts, particularly in the case of short-dated instruments.

Investec predicted the ECB could lower the repo rate by as much as 100bps in 2009, which would be positive for euro-denominated government bonds.

It also said central banks in Australia, Sweden and the UK may follow suit.

Investec added New Zealand had already reduced rates by a surprise 25bps last month and that the government bond outlook in the country was consequently positive.

However, the company said it expected rates in the US and Japan would increase, following sharp cuts in the US and easy policy in Japan.

Weaker economic activity and lower inflation will support consumption, Investec said, which in turn will prompt rate rises next year.