City investment guru Justin Urquhart-Stewart today (4 February) warned not to overlook potential gains from international high-grade government bonds.

With many governments in a similar situation to the UK government, carrying large deficits and being heavily indebted, many fund managers had warned that the dangers from high-grade government bonds far outweigh the potential benefits.

However, Urquhart-Stewart – founder of Seven Investment Management and Broker Services before it (later Barclays Stockbrokers) – said that overseas high-grade government bonds could offer significant benefits.

He explained, ‘Arguably, overseas high-grade government bonds are potentially attractive as they offer some currency diversification away from Sterling, which could have a torrid year.

‘Perhaps the most attractive overseas bonds are Euro denominated bonds issued by Germany or France, who remain AAA rated countries.’

Urquhart-Stewart said that the European Central Bank has established itself as a strong, prudent, anti-inflation guardian of its currency, which could be strong relative to the sickly Pound.

He added, ‘There is some concern regarding the financial position of some of the peripheral European countries like Greece and Portugal.

'Whilst this is a worry, these economies are relatively small and seem unlikely at the present time to sink the Euro.’