RBC Capital Markets: Risk-Reward Improves for Tactical Longs in European Government Bonds

According to Jin10, Royal Bank of Canada Capital Markets analysts said the risk-reward profile for tactical long positions in European government bonds had improved, despite the continued risk of further energy price increases. They said a tactical bond-market rebound from current levels was conceivable whether energy prices surged further, for example because of escalating geopolitical tensions, or fell again as tensions eased. Royal Bank of Canada Capital Markets has long been bearish on bond markets and said the structural backdrop supporting current yield levels had not changed. However, the analysts said markets could still correct further tactically, and it remains to be seen how resilient economic activity will be in the face of rising rate-hike expectations and high bond yields.