Markets are overestimating sovereign debt risks, according to Jupiter Asset Management’s Mark Nash, who is betting long-dated bonds will rebound from their recent selloff. Nash, a fixed income manager at the £74 billion ($100 billion) investment firm, favors curve-flattener trades — betting on a decline in longer-dated bond yields. That runs counter to the prevailing view that heavy debt burdens will drive governments’ borrowing costs higher and steepen yield curves. “The term-premium blowout we’ve seen recently is overdone,” Nash said, referring to the additional yield investors demand to hold long-dated bonds. “Sovereign risk is going down, not up.”

His position mainly focuses on Europe, Britain and Japan, where he’s overweight 30-year bonds relative to the two-year segment. He sees more impetus for structural reform in those markets than in the US, and expects resilient growth to help governments curb borrowing and contain debt ratios. That should narrow term premiums from current levels, he reckons. The selloff has alarmed governments, prompting the Treasury to take the unusual step of buying back billions of dollars worth of debt to ease borrowing costs. Authorities said this week they would purchase as much as $6 billion of longer-dated Treasuries — triple the amount announced last month.

Even so, Nash pared his Treasuries flattener in late July, and has stuck with that stance, seeing limited appetite in Washington to rein in its $40 trillion debt load. The Federal Reserve also seems “more reactive than proactive,” he said, which could undermine US curve flattening. Elsewhere, Nash’s flattener bets are benefiting from money markets’ expectations for aggressive monetary tightening by the European Central Bank, the Bank of England and the Bank of Japan, which is lifting short-dated yields. Still, he is becoming wary of the buildup in rate-hike bets.