Whoever Positions First Benefits in Inflation: Global Bond Funds Snatch Up Australian and German Government Bonds, Fed and BoE Labeled as "Catch-Up Players"

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3小时前

Countries that acted swiftly to combat this year's inflation surge are winning favor with bond investors, while slower movers may ultimately pay the price through higher interest rates.

Asset managers including Jupiter Asset Management and Candriam are buying Australian government bonds, betting that four rate hikes since February signal this tightening cycle is nearing its end. UBS Asset Management and France's Carmignac Gestion SA are accumulating German government bonds, expecting that as the European Central Bank acts more proactively and proves more capable than the Fed and the Bank of England at suppressing inflation pressures, German bund yields will decline.

The logic is straightforward: central banks that act earlier will see results sooner, limiting how much further tightening they will need. Unlike the previous inflation shock in 2021 and 2022, when central banks initially stayed on the sidelines before tightening policy in unison, this year's actions have been staggered. This has created opportunities for investors to bet on divergent paths.

"Everything this year revolves around inflation and central bank credibility," said Mark Nash, fixed income fund manager at Jupiter Asset Management. "Those who get it right will benefit."

Monetary policy transmission involves lags, so the ECB's tightening has not yet fully permeated the real economy, which explains why European inflation remains stubbornly high. Reserve Bank of Australia Governor Michele Bullock made this point on Tuesday, noting that rate hikes may take 12 to 18 months to fully take effect.

The ECB's stance is the key reason Carmignac is buying German five-year government bonds, preferring them over bonds from other developed nations. In recent months, the German yield curve has flattened more than that of other G-10 members, sending a signal that future inflation expectations are cooling.

"I separate the central banks, with the ECB on one side and the Fed and Bank of Japan on the other," said Guillaume Rigeade, co-head of fixed income at the French asset management firm. "The ECB was very clear around March and April, saying, 'OK, this is an inflation shock.'"

ECB President Christine Lagarde said this week that rising bond yields will slow growth and curb the inflationary impact of high energy costs more significantly than previously forecast last month, when the bank implemented its second rate hike since June. Policymakers need to anticipate such second-round effects as early as possible, "because by the time it appears, it is already a bit too late."

Kevin Zhao of UBS Asset Management has been buying 30-year German government bonds as well as Australian government bonds, on the view that central banks which started hiking earlier will need to tighten less in the future. Meanwhile, he is shorting US Treasuries, expecting that an AI-driven boost to the US economy will require the Fed to implement more rate hikes.

"During a supply shock, a proactive central bank is beneficial for bond investing because it reduces the risk of inflation spiraling out of control," Kevin Zhao said.

With this week's rate hike, the Reserve Bank of Australia became the first major central bank to raise interest rates above their pandemic-era peak. Australian government bonds rallied after Bullock indicated she hopes this year's four rate hikes will be sufficient to tame inflation.

Nash of Jupiter Asset Management has overweighted Australian government bonds across all his fixed income funds, and this week reduced curve-flattening positions in favor of two-year maturities after the RBA hinted it may be approaching the end of its tightening cycle. He has remained cautious about buying US Treasuries, believing the Fed "will be slow" in following the actions of Australia, Europe and others. Nevertheless, this month's bond selloff pushed two-year Treasury yields to their highest in more than two years, prompting him to buy, reasoning that the market has overpriced rate hikes for the coming months.

Jamie Niven, senior fixed income portfolio manager at Candriam, prefers Australian government bonds over New Zealand and US bonds. He has also cut exposure to UK gilts, citing the fact that the Bank of England, which has yet to raise rates, will have to play catch-up.

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