Bond Funds Turn to Europe as Global Risks Become Harder to Price

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessBond Funds Turn to Europe as Global Risks Become Harder to PriceEuropean bonds are emerging as a safer choice for fund managers as they try to navigate an increasingly fraught global backdrop.Author of the article:Alice Atkins and Naomi Tajitsu You can save this article by registering for free here. Or sign-in if you have an account.mnyaa0l1tbmzsennygrlp2fr_media_dl_1.png Bloomberg(Bloomberg) — European bonds are emerging as a safer choice for fund managers as they try to navigate an increasingly fraught global backdrop. THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountUBS Asset Management and Guinness Global Investors have been buying German bonds, Barings sold US Treasuries to boost exposure to Italy, Spain and France, and Aviva Investors say overweight positions in the euro area look attractive. “There is a strong case for reducing your Treasury allocation, reducing your gilt allocations, and moving into Europe,” said Brian Mangwiro, an investment manager at Barings. “If you’re seeking more of a stable institutional and political environment, low growth and inflation, then you end up in Europe.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againUS Treasuries are falling out of favor as the inflation-fighting credibility of Federal Reserve Chairman Kevin Warsh is called into question. Meanwhile, investors are waiting to see the UK’s next budget to get a better idea of the country’s spending plans, and Japanese bonds are being hit by volatility as yields soar to multi-decade highs. Intervention to prop up the yen may only bring temporary relief.While euro area debt has been hit by the global selloff triggered by the Iran war and the energy crisis it unleashed, some investors say the outlook for fiscal and monetary policy is more predictable than in the US, UK and Japan, and better reflected in market pricing. Japan’s 10-year government bond auction Tuesday drew its weakest demand since May 2025.Yields on 30-year Treasuries climbed to their highest since 2007 last week, underperforming German debt. The spread between them hit its widest point in a year. Oil has been the primary trigger for rate re-pricing this year, and remains about 15% up since late February, but other factors are making investors nervous about holding longer-dated bonds. Increased spending on defense and caring for ageing populations is piling pressure on government finances, while geopolitical turmoil, climate change and trade barriers could keep inflation elevated.The path for Treasuries has been clouded by questions over how the Fed intends to restore price stability. It left rates unchanged last week, and Warsh’s ambiguity on key issues has raised doubts about his commitment to returning inflation to the 2% target. Adding to the angst: the New York Times reported Friday that he’s considering reducing the frequency of policy meetings. In the UK, investors are likely to remain cautious at least until Prime Minister Andy Burnham’s tax and spending plans are detailed in his administration’s first budget on Oct. 28. He faces big questions about how to fund rising military investment and adult social care. Yields on 30-year gilts are already the highest in developed markets. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Europe has its share of fiscal pressures and is exposed to the continuing energy-price volatility stemming from the Middle East conflict. Still, some investors believe the ECB will move more aggressively than its peers to tackle the fallout. “The ECB does tend to push a bit harder with regard to controlling inflation at the expense of potential weaker growth, and the weaker growth would be good for bonds,” said Craig Veysey, a portfolio manager at Guinness Global Investors.Traders are betting that the ECB will hike rates by a quarter-point this year, while assigning a more than 60% chance that another hike will follow, according to swap markets. Sightly more tightening is priced for the ECB than the Federal Reserve or Bank of England. Kevin Zhao, head of global sovereign fixed income and currencies at UBS Asset Management, says markets are anticipating too much tightening in Europe, and the rise in the German 10-year yield above 3% last month offers a good opportunity to buy. “Europe doesn’t have an inflation problem. That is different from the UK, US,” said Zhao, who sees bunds as an attractive defensive bet. “Over the long term, Europe is low growth, low inflation, but with a very credible, independent central bank.”Last week, money markets were pricing 70 basis points of ECB interest-rate hikes by the middle of next year. Aviva Investors believes the move was overdone and said it made an overweight position in the region’s bonds appealing. It’s far from a simple haven trade, however, as borrowing needs and political risks vary widely across the region. Once investors have chosen Europe over global peers, the challenge is selecting which country’s debt to buy.JPMorgan Asset Management’s Kim Crawford has curbed her exposure to longer-dated Italian bonds, on the view that budget negotiations in September pose a risk as cracks emerge in Prime Minister Georgia Meloni’s coalition. Instead, she’s sees a possible entry point in French debt, with 10-year paper yielding nearly 80 basis points more than its German equivalent. “Europe is attractive, though there is less upside than in the UK,” she said. “Policy is already within the neutral range in Europe while it is in restrictive territory in the UK.”—With assistance from Georgia Hall.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.