A top fund that returned over 19% last year is betting global bond markets are about to get blindsided again

Federal Reserve Chairman Jerome Powell.
Andrew Harnik/AP Photo

A fund that bet correctly last year on surprise reversals in British and Japanese bonds has a new contrarian stance.
BlueBay Asset Management believes bond markets have underestimated hawkishness from global central banks.
It is now shorting Italian, Japanese and US debt, according to Bloomberg.

A London-based fund that bet correctly last year on surprise reversals in British and Japanese bonds thinks global markets are about to be blindsided again.

BlueBay Asset Management's Global Sovereign Opportunities Fund returned more than 19% in 2022, helped by the record plunge in UK bonds and the Bank of Japan's shocking adjustment to its yield-curve control policy, which triggered a sell-off in bonds, according to Bloomberg.

The fund has a new contrarian bet as BlueBay believes bond markets have underestimated hawkishness from global central banks.

"We think markets have been too quick to price a dovish Fed," Chief Investment Officer Mark Dowding told Bloomberg. "This week's central bank meetings on both sides of the Atlantic may contain a hawkish surprise."

The Federal Reserve will wrap up its policy meeting Wednesday and is expected to announced 25-basis-point rate hike. More monetary tightening is also anticipated from the Bank of England and European Central Bank on Thursday.

For its latest bet, BlueBay is shorting Italian, Japanese and US debt, according to Bloomberg. Other notable bets include going short on the British pound.

Its stance on global interest rates is at odds with a market that is increasingly growing optimistic that central banks will turn dovish.

That sentiment is based on hopes that inflation will continue to slow down, allowing policymakers to ease up on their tightening. But recent data have indicated surprise rebounds in Spanish and French inflation.

Other top funds like Fidelity and BlackRock are also worried that investors are too hopeful that rates and inflation have peaked, and could be underestimating the macroeconomic outlook in the year ahead.

So far, central bank officials have committed themselves to remaining data-dependent to inform future rate hikes.

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