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BlackRock, the world’s biggest money manager, on Monday took a bearish view on eurozone government and corporate bonds, saying that elevated valuations and a brightening outlook are causes for concern for fixed-income investors.

The economic recovery across the currency bloc has “steadily accelerated since mid-2016, with the region’s composite PMI hitting a six-year high in March,” said Richard Turnill, the New York-based group’s chief investment strategist.

“The disconnect between this economic outlook and heady eurozone bond valuations makes us nervous,” he said.

Mr Turnill sees short-term political risks “waning after the key spring French election, even if Italy remains a concern”. In turn, that could cause an “unwinding” in safe-haven buying and potentially ignite concerns that the European Central Bank will begin easing its accommodation — two factors that could cause government bond yields to rise.

“A jump in sovereign yields could spark outflows from richly priced investment grade bonds,” he said.

Copyright The Financial Times Limited 2017. All rights reserved.
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