For the first time ever, Jupiter Asset Management's Mark Nash is placing a long-term, strategic bet that Japanese government bonds will rise.
Nash bought 10-year JGBs last week, closing a long-held short position in the maturity, saying Prime Minister Sanae Takaichi's resounding election win just over a week ago removes political uncertainty and gives her a free hand to set policy.
“Things look bright, why not take JGB exposure?” Nash, who helps manage about $1.3 billion at Jupiter, said in an interview. “JGBs have been battered on policy concerns, and now that that's clearing up, we think the opportunity is there.”
A shift to higher interest rates and months of political uncertainty have hoisted Japan's government bond yields to their highest in decades. Nash is part of a growing group of foreign investors lured by the potential returns at a time when unpredictable US policy making encourages a move away from US assets.
Photo Credit: Bloomberg
Since the vote, the country's bond market and the yen have surged, leaving the yield on 30-year notes down about 40 basis points in less than a month.
“The market has been absolutely petrified, and it's really struggled to work out what the future policy from the BOJ and the government is going to be,” he said. “Japan showed that as soon as you act with clarity, the long end will rally.”
Long-Term Shift
Nash took a punt on Japan's government bonds after US President Donald Trump's shock tariff announcement in April. But the shift in his longer term view ends a strategy of selling the nation's debt that he was pursuing up until a few months ago.
Going short worked well for him, ensuring his Strategic Absolute Return Bond Fund returned 7.6% over the last year, and putting it in the top 10th percentile compared with funds with similar mandates.
The political calm is also encouraging him to buy the yen against the dollar and the pound. In particular, he's betting its days of weakness compared with its safe-haven rival — the Swiss franc — are numbered.
The yen and the franc are the “ultimate indicator about the fiscal backdrop,” he said. Switzerland's healthy fiscal accounts and trade surplus have long made it the more popular choice for investors, compared with Japan's chronically high government borrowing, reliance on energy and “unstable” politics.
A rise of 8% or 9% in the yen versus the franc and other currencies isn't “too hard to imagine” given Takaichi's solid mandate, Nash said.
“This has not happened for a long time.”
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