US-Iran conflict boosts inflation, BlackRock says US and European government bond prices may continue to fall.

Against the backdrop of rising oil prices and increasing inflation risks, a bond fund manager has warned that investors in US Treasuries and European government bonds may need to prepare for further price declines. Tom Becker, manager of the $4.4 billion Tactical Opportunities Fund under BlackRock, stated that as energy, data center chip, and defense-related costs rise, global inflation pressures may resurface, driving bond yields further upward. Becker, in an interview with the media, said that he advised investors to short or reduce exposure to US Treasuries as well as government bonds of major European economies like the UK, Germany, and Italy when bond prices rose in January. With bond prices falling recently, this strategy has begun to pay off. As yields move opposite to prices, rising yields mean bond prices will continue to be under pressure. He pointed out that current bond yields are still significantly lower than last summer's levels, indicating further upside potential. "Yields are still low compared to last summer, we believe they have significant room to move higher," he said. Since the US and Israel launched attacks on Iran on February 28, global bond markets have experienced significant adjustments. The yield on the US 10-year Treasury has risen by about 0.27 percentage points. At the same time, the yields on the 10-year government bonds of the UK, Germany, and Italy have also increased by 0.433 percentage points, 0.260 percentage points, and 0.403 percentage points respectively. Becker believes that the expanding defense spending in Europe, along with massive global investments in artificial intelligence infrastructure and disruptions to commodity supplies such as oil and fertilizers due to Middle East conflicts could bring new inflationary pressures. Inflation typically erodes the real purchasing power of fixed-income assets, so investors often seek higher yields as compensation. "At the beginning of the year, the market was mainly focused on global economic growth momentum, but now we are seeing inflationary momentum forming globally," Becker said. This week, the European Central Bank, the Federal Reserve, and the Bank of England will all hold rate meetings. Markets will closely watch the central banks' judgments on the inflation pressures that could arise from the Middle East conflict. If central banks choose to maintain high rates or even tighten policy further, it could also keep bond yields at elevated levels. Compared to Europe, the US has some room for maneuver in its interest rate policy, as it is a net exporter of energy. However, in the ongoing tense situation in the Middle East, traders have already begun betting that the European Central Bank will raise rates at least once this year. Becker pointed out that the core policy goal of the ECB is price stability, while the Fed needs to strike a balance between controlling inflation and supporting employment. This institutional difference means that the ECB may take more proactive policy actions when inflation pressures rise. He said, "This makes us more convinced that if inflationary pressures continue to accumulate, the ECB may take action earlier and more actively than other central banks."