Fund managers have been aggressively buying government bonds following a Iran war-induced sell-off, betting market focus will shift from inflation fears to growth concerns. Schroders, M&G Investments, and JPMorgan Asset Management have increased debt holdings as yields hit multiyear highs, believing returns don't account for probable economic weakening requiring future rate cuts.

The Iran conflict caused oil prices to surge from $72 to nearly $120 per barrel, pushing 10-year Treasuries yields up 0.5 percentage points to nearly 4.5% and gilts yields 0.9 percentage points to over 5.1%. However, yields have retreated from these peaks as some managers detect a shift toward growth concerns, with Morgan Stanley moving bullish on US Treasuries.

Bond investors argue debt will perform well whether the war ends quickly or escalates, with longer-term inflation expectations remaining stable around 2.4%. Managers like JPMorgan have been buying long-term debt globally while others focus on economies with pre-existing growth weakness, such as the UK where Aviva Investors added to short-dated gilts exposure.

Despite the buying opportunities, many fund managers remain cautious about fully committing to a bond rally. High volatility and unpredictable policy moves from the Trump administration make timing difficult, with Citi's Jamie Searle noting they're "watchful, but not yet ready to say this is a great opportunity to buy" due to risks of oil price spikes.