"To put this in context, the UK may issue close to £300bn in gilts this year. That compares with about £150bn last year and a record high of £228bn in the wake of the financial crisis.
"However, the Bank of England’s QE programme is designed to remove up to £200bn of that from the market – with the possibility to do more.
"If we assume they are broadly happy with current market levels, then it is likely we see the volatility of core government bonds collapse in coming months, almost irrespective of economic data.”
Mr Roberts added that governments have committed to spending over £10bn on fiscal stimulus in an attempt to provoke economic growth, and if this plan works “government bonds are the last thing you would want to invest in”, but he expects such gains in economic growth to be a least a year away.
Demand for government bonds
Bryn Jones, fixed income director at Rathbones Unit Trust Management says there has been such demand among investors that for every £1 of new bonds brought to market by governments, there are about £4 worth of orders.
Such demand exceeding supply would typically be viewed as very positive for the price of an asset.
Alex Pelteshki, who runs the Kames Strategic Bond fund, says developed market government bonds look “decent value” right now, as economic growth and inflation are likely to be very low for a considerable period of time.
Low inflation is a positive for government bond prices as it means the income from bonds is worth relatively more.
He adds that the best value is to be found in the bonds with the longest date until maturity, as those bonds have the higher yields.
Nick Wall, bond fund manager at Merian Global Investors says there could be an element of self-fulfilling prophecy about the outlook for global growth and inflation, and the impact this has on bond markets.
He says the response to the Covid-19 crisis has left many companies, individual and countries heavily indebted, and this will restrict their ability to spend in future, limiting the capacity for economies and countries to grow.
This is because the future debt repayments will leave less cash either for investment in future growth or for consumption today.
Torcail Stewart, bond fund manager at Baillie Gifford says that while the higher debt levels, and longer-term economic issues in the UK such as the ageing population, mean the UK economy is starting to resemble that of Japan, but that bond yields, while low, have not yet reached the point where they are reflecting a “Japanese style scenario” in the UK.
