(Bloomberg) -- Jupiter Asset Management has cut US Treasury holdings to zero in one of its main bond funds, buying European government notes and adding to its hefty emerging-markets position instead.
Harry Richards, who co-manages the £1.3 billion ($1.7 billion) Strategic Bond Fund, said he exited Treasuries entirely two months ago and only has modest exposure across the four other funds he helps oversee. Signs of "overheating" in the US economy mean interest-rate hikes are more likely there than in Europe, dimming the appeal of Treasuries, he said.
It's the first time the fund has been without US government bonds in almost a decade. While Jupiter's position is tactical, it chimes with investor concerns about surging national debt, sticky inflation and questions over central bank independence — which are particularly prominent in the US.
"We rotated to other markets where we saw much better relative value," said Richards, who helps manage a total of $6 billion across five funds at the $91.3 billion investment firm in London. "There were too many hikes priced in in Europe and too many cuts priced in the US."
The bet has paid off: the Strategic Fund, which does not follow a benchmark and can invest wherever it chooses, has beaten 93% of peers so far this year. Treasuries handed investors a 0.1% loss since the end of April, compared with a 0.6% return for German Bunds, Bloomberg indexes show.
Treasuries are "broadly considered the world's safe-haven asset," Richards said. "But if we don't see opportunity, and if risks outweigh the opportunity at a certain point in time, then we are happy to be contrarian."
Minutes published Wednesday from the Federal Reserve's last meeting reflected growing concerns about inflation, with nine rate-setters foreseeing at least one quarter-point hike this year, and six anticipating at least two. Most said "some policy firming would likely be warranted" to bring price growth back to target.
While money markets are pricing one, or even two rate increases from the European Central Bank this year, to follow its June increase, many strategists say the bloc's sluggish economy and cooling inflation will rule out further hikes.
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Meanwhile, emerging-market bonds are Richards' highest-conviction trade and one he's been building ever since President Donald Trump's tariffs bombshell in April 2025 spurred a hunt for investments outside the US. Developing-nation debt has given a 8.8% return since then, more than double that of Treasuries.
"Coming into 2025, we had relatively little in emerging-market local currency, but post Liberation Day, we saw quite a lot of opportunity for a change of guard," he said, referring to the day Trump announced the tariffs.
Emerging-market bonds now account for 13%-15% of his portfolios, the highest proportion since 2008, he said.
While he likes bonds from Brazil, Mexico, South Africa and India, Richards highlights the example of government debt in Paraguay. He currently holds a 2% position in the country's bonds, a massive position, given they have a share of just 0.09% in JPMorgan Chase & Co's emerging debt index.
Real yields and comparatively stable finances are the reason, he says. Rated at investment grade, Paraguayan 10-year notes yield 9%, while inflation is around 2.4%.
The landlocked nation's access to hydropower, meanwhile, has shielded it from the oil-price spike and the government is legally mandated to keep its budget deficit below a certain threshold. The local currency, the guarani, has strengthened around 10% against the euro and the pound this year, Richards noted.
The artificial intelligence boom also underpins Richards' preference for emerging markets. For every dollar global tech firms invest on their multi-trillion dollar AI buildout programs, 33-35 cents is spent on commodities, he said, which directly benefits mineral-rich developing nations.
"Through the fullness of time, that could be something that benefits emerging market currencies," he said.
--With assistance from Srinivasan Sivabalan and Alice Gledhill.
(Adds detail on Fed minutes, ECB expectations in seventh and eighth paragraphs.)
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