Should investors stay bullish on European bonds?

I always think the change of government bond price is not just a matter of financial markets, but also sends signals about the macroeconomic performance, especially government bonds can well refer one government's budget condition and the market confidence about its economy and its world importance.

JPMorgan sends a message to its investors that the investors should stay bullish on European bonds. Recently there has been a big sell off swing in the market. Some investors may follow and sell off their holdings, this has dragged down the bond prices. The fall in bond prices is usually caused by several reasons. Firstly, the market risk premium decreases, then investors may start to prefer securities with higher risk and higher returns, therefore the bonds, especially the low yield bonds become much less popular then the prices will fall for certain. Secondly, when the market expects a high inflation in the future, as the return rates of bonds are usually set as nominal rates, the real returns of bonds become lower.

The current market believes the inflation rate in Europe could rise sharply in the near future, then selling off bonds becomes a rational choice. However, JPMorgan believes that the market risk premium stays the same, so keep holding bonds is the best alternative to all other investment options.

At the moment, I think that people should only stay bullish on inflation-related government bond, this is relatively more certain than other securities including other types of government bonds. Negative interest rates, poor productivity, depreciating currency prices can all contribute to an increase in inflation; however, these facts can also contribute an economic unrest, which leads to relatively poor returns of many securities. Therefore, under such circumstance, only inflation-related government bonds can handle such complex situation well, maybe gold is another safe choice.