Global bond funds are rewarding countries that acted quickly to tame inflation, while delaying nations face higher rates. Jupiter Asset Management and Candriam are buying Australian debt, betting that four rate hikes since February signal the cycle's end. Conversely, UBS Asset Management and Carmignac Gestion SA are acquiring German bonds, expecting yields to fall as the European Central Bank's proactive approach outperforms the Federal Reserve and Bank of England. The rationale is that earlier action limits future tightening needs. Unlike the 2021-2022 shock, when central banks initially held off before aggressive synchronized hikes, this year's moves have been staggered, creating opportunities to bet on divergent paths. Mark Nash of Jupiter Asset Management notes, "This year has been all about inflation and central bank credibility. Those that get it right benefit."
Monetary policy works with a lag, explaining why European inflation remains high despite ECB tightening. Reserve Bank of Australia Governor Michele Bullock noted rate rises take 12 to 18 months to fully filter through. The ECB's stance prompted Carmignac to favor Germany's five-year debt, flattening its yield curve more than other Group-of-10 nations. Guillaume Rigeade of Carmignac differentiates central banks, stating the ECB clearly identified the inflation shock starting around March and April. ECB President Christine Lagarde warned that rising bond yields will slow growth and limit inflationary energy impacts more than previously projected. UBS Asset Management's Kevin Zhao is buying 30-year German bonds and Australian debt, shorting Treasuries on views an AI-driven US economic boost will require more Fed hikes. With the recent hike, the RBA became the first major central bank to lift rates above Covid-era peaks, prompting Australian bonds to rally.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing