Japanese government bonds present a prime opportunity in global fixed income, despite their perceived risk, according to an Azimut Group fund manager. "We believe the market is perhaps underestimating the Bank of Japan's willingness to allow yields to rise," said Raffaele Morese, head of fixed income at Azimut.

Morese’s team has increased its exposure to Japanese government bonds, or JGBs, over the past year. They see the potential for yields to climb further as the Bank of Japan gradually normalizes its ultra-loose monetary policy. The current yield on the 10-year JGB is around 0.7%, compared to negative yields for much of the past decade. Azimut is betting that this trend will continue.

While acknowledging risks, including potential policy shifts and geopolitical instability, Azimut believes the current yield levels offer attractive compensation. They are focusing on the medium-term outlook, expecting continued yield appreciation. This strategic shift reflects a broader trend of investors seeking higher returns in a volatile global market, with JGBs emerging as a surprising, yet potentially lucrative, destination.