Fund managers have been snapping up government bonds after a brutal sell-off triggered by the Iran war, as they bet that the market’s focus will shift from inflation fears to the likely hit to economic growth from the conflict.
Big investment firms including Schroders, M&G Investments and JPMorgan Asset Management have added to their holdings of debt as yields hit multiyear highs, in the belief the returns now on offer do not account for a probable weakening of growth that could require future interest rate cuts and trigger a bond rally.
“We think the market is underpricing the probability that central banks will have to cut interest rates further out, in order to offset the growth shock,” said Ben Nicholl, a senior fund manager at Royal London Asset Management, which has been buying three-to-seven-year gilts in recent days.