The Canadian bank is more attracted to holding non-government fixed income assets, and is also bullish on equities, which are expected to be supported by a positive earnings outlook, rising merger and acquisition activity and attractive valuations for stocks.

“We continue to see limited value in the sovereign market, as there is restricted scope to rally further, even after the recent repricing of the market,” according to the RBC Wealth Insight report.

As far as non-government fixed income is concerned, RBC said investors can earn a yield benefit compared with holding sovereign bonds. “Total return investors need to be selective, however, given a challenging environment with some risk of increased M&A activity,” said the note, authored by George King, head of portfolio strategy and investment consulting at RBC Wealth Management, British Isles.

On currencies, RBC said the dollar will be the main beneficiary of euro weakness out of the G10 group of currencies.

“Indeed, high yielding currencies such as the AUD are likely to suffer against the dollar, as the market corrects their prior large appreciation against the dollar over the course of the next year,” RBC said.