If you think government debt is a runaway train, Mark Nash thinks you're looking in the wrong direction. The fixed income manager at Jupiter Asset Management, which runs £74 billion ($100 billion), says the market has overshot on sovereign risk. "Sovereign risk is going down, not up," he said, adding that "the term-premium blowout we've seen recently is overdone."
His stance bucks the common view that hefty public borrowing will push long-term funding costs up and make curves steeper. He favors curve-flattener positions, essentially a bet that yields on longer maturities fall relative to the front end.
According to Nash, curves bulged when the Middle East war kicked off, but for much of this year they have been moving the other way. He sees that pattern as evidence "that this year is not about weak growth, it's the opposite." A Bloomberg graphic shows Germany's short-to-long yield gap at its tightest since early 2025, and a related note highlights traders ramping up European Central Bank hike bets as a German yield hit a 17-year high.
Nash's main focus is Europe, Britain and Japan, where he holds more 30-year bonds versus two-year paper. Compared with the US, he judges Europe, Britain and Japan to be further along the reform track, and he anticipates solid growth will curb borrowing and stabilize debt ratios. From here, he thinks term premiums should compress.
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Outside the US, his flattener trades are riding expectations for forceful tightening by the European Central Bank, the Bank of England and the Bank of Japan, lifting yields at the front end. He is, however, growing cautious about how far these wagers have run. For the ECB specifically, swaps point to three more hikes over the next year after Thursday's 25 basis-point increase.
Even as the bond selloff spooked officials in Washington, the US Treasury took the unusual step of announcing buybacks of as much as $6 billion in longer-dated Treasuries this week, triple last month's amount, to help ease borrowing costs. In late July, Nash reduced his Treasuries flattener and has not adjusted the trade afterward. He sees little appetite in Washington to confront the $40 trillion debt burden, and says the Federal Reserve appears "more reactive than proactive," which could work against a flattening outcome. "So it might delay the term premium downshift," he said.
One big swing factor: energy. "If you get energy spiking, oil spiking above $100 and natural gas going higher, at some point, central banks will decide that hikes are not going to help the economy, that it's just damaging growth." For your portfolio, the takeaway is simple enough to act on without a hero trade: watch how growth, policy paths in Europe, the UK and Japan, and any energy shock tug at the long end of the curve. The direction of term premiums from here will set the tone for bond returns.
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