Bond Managers Bet Central Banks Will Diverge Despite War

Crude oil futures charts on the floor at the New York Stock Exchange (NYSE) in New York, US, on Monday, March 9, 2026. The war in the Middle East sparked fresh turmoil in global markets as oil smashed through $100 a barrel, spurring losses in stocks and bonds. Photographer: Michael Nagle/Bloomberg Photo by Michael Nagle /Bloomberg

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(Bloomberg) — Bond managers are doubling down on bets that central banks’ monetary policy will diverge, even as the inflation fear unleashed by the war in Iran boosts the case for higher interest rates.

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Government debt has been whipsawed in the run-up to a wave of central bank meetings this week, but investors say it’s wrong to assume rates will rise across the board because of the war.

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Some are buying the bonds of nations where growth is weak — on the grounds that policymakers in places like the UK won’t pile on the economic pain by raising rates and may even look through the shock and continue cutting.

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At the same time, others are sticking with sovereign bonds whose yields are relatively high because interest rates were already rising, such as those of Australia and Japan.

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“Yes you’re getting an inflationary shock, but the backdrop of the economy is weaker than in 2022,” said Mark Nash, an investment manager at Jupiter Asset Management. He bought short-dated bonds in the UK, Europe and Australia last week on the view that markets are pricing in too many interest-rate hikes. 

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The rise in short-dated yields offers “good risk-reward for central banks not hiking at all,” Nash said.

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Before the war, economists were forecasting the widest split in the direction of major central-bank policy rates since at least 2009, according to research by Bloomberg Economics, and investors were building positions to capitalize on the divergence. Even now, as oil trades above $100 a barrel, fund managers interviewed by Bloomberg said there’s little chance of synchronized monetary policy returning anytime soon. 

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The Reserve Bank of Australia delivered its second rate hike this year on Tuesday, with the board citing higher energy costs as a concern. Most other central banks are expected to keep rates unchanged this week, but markets have also flipped to mull interest-rate hikes in the UK and Europe later on in the year, while confidence in cuts in the US has faded.

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Sweden, South Korea

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Alex Holroyd-Jones, a portfolio manager at Ninety One Asset Management, favors exposure to long-dated Australian bonds, where the central bank has already moved to increase rates. He also owns short-dated Swedish and South Korean bonds, on the view that officials there are unlikely to be as hawkish as the market expects.

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“Some central banks may be forced to react with rate hikes and others will likely look through the shock and continue cutting,” Holroyd-Jones said.

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Lynda Schweitzer at Loomis Sayles & Company is also sticking with debt in regions where central banks already turned hawkish. She favors exposure to long-dated Japanese, Australian and New Zealand bonds, while her conviction on a weaker dollar has ebbed.