Karishma Vanjani

Investors in Treasuries and European government bonds should prepare for steeper losses because of the inflation risk from higher prices for oil, data-center chips and military equipment, a bond fund manager says.

Blackrock's Tom Becker, who holds bonds from both continents in the firm's $4.4 billion Tactical Opportunities Fund, recommended keeping a short position or selling Treasuries, U.K., German, and Italian government bonds when they were rising in January.

Now as prices fall, Becker's bets are paying off -- and he told Barron's that he's confident yields will keep going up. Because bond yields and bond prices move in opposite directions, it means prices will fall more.

Yields are "still quite a bit lower than they were even in the summer of last year," he said in a phone interview on Friday. "And so we think there's actually a fair amount of scope for them to rise further."

Since the U.S.-Israeli attack on Iran on Feb. 28, Treasuries have sold off, with yields on the 10-year rising 0.270%. Yields on U.K., German and Italian bonds that mature in a decade are also up by 0.433%, 0.260%, and 0.403%, respectively.

But the surge in defense spending by Europe coupled with spending on artificial intelligence and supply-chain shortages in all products that pass through the Strait of Hormuz -- from oil to fertilizer and more -- can lead to inflation shock. Inflation is known to erode the purchasing power of fixed interest payments and raises demand for yields.

"Coming into the year there was kind of a strong [economic] growth impulse globally and now there's a global inflation impulse as well," Becker said.

The European Central Bank, the Federal Reserve and the Bank of England will meet this week on interest rates. Their comments will give insight into how they plan to tackle inflation that is expected from the Iran war. Holding interest rates steady or raising them is another reason for yields to stay higher.

The Fed has a bit more breathing room on rates because the U.S. exports more oil than it imports, but the Middle East crisis has traders betting the European Central Bank will interest rates at least once this year.

The ECB also has a primary mandate focused on price stability; the Fed balances both inflation and the labor market.

"That makes us more confident that as inflation pressures continue to build that European central banks may be more proactive" with rates, Becker told Barron's.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 16, 2026 13:33 ET (17:33 GMT)

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