BlackRock Inc. is increasing bearish positions on German bonds, anticipating a significant inflation uptick across Europe will push borrowing costs above recent 15-year highs. Tom Becker, who manages the $6.5 billion Tactical Opportunities Fund, has boosted short positions in 10-year and five-year German bunds since the war in Iran began a month ago.

Becker expects governments to ramp up spending to help euro-area households with higher energy prices and boost military capacity. He believes markets are under-appreciating the fiscal response from European policymakers, which will mean more bond supply in coming quarters. The fund manager sees German 10-year yields rising above the 3.13% high reached last week as investors demand greater term premiums on longer-maturity debt.

This strategy has already boosted the Tactical Opportunities fund by nearly 3% over the past month, outperforming similar funds that have lost an average of 4%. Becker has taken profits on some UK positions and focused on Germany, where he believes five-year borrowing costs in five years should align more closely with US and UK equivalents. His trade reflects a long-held view that inflation will emerge as a significant risk as governments continue responding to crises with fiscal measures and increased debt issuance.