Bond veteran Greg Wilensky has seen rising inflation too many times to get carried away with this year’s high-inflation trade.
“I have been managing bond portfolios for 25 years, through very large monetary programs, large deficits and the Fed trying to raise inflation expectations,” money manager Janus Henderson said in an interview. “As much as I can see legitimate reasons I could go through this time, I could have said that very often in the last twelve years as well.”
Wilensky’s skepticism represents investors ’enthusiasm for bets related to a quick economic recovery and higher prices. Operations that favor economically sensitive stock values, sharper yield curves and a rise in commodities have faltered after a stellar first quarter.
The MSCI AC global value index has lagged its growth counterpart by about 6 percentage points since March 8. exceed expectations. And on Tuesday a strong 30-year Treasury auction suggested demand for even the most exposed interest rate bonds Returning.
One of the biggest questions facing money managers now is whether the recovery driven by growth and inflation stimulus, particularly in the United States, can move toward sustainable expansion that will continue to drive yields. of shares and bonds. The International Monetary Fund recently has updated its global growth forecast for 2021 to the strongest of four decades, but the prospects beyond that are less clear.
Predicting a trajectory for price levels beyond this year is even more difficult for investors, given the distorting effect of coronavirus shutdowns, temporary supply bottlenecks and basic effects of last year’s disinflation. The rise in U.S. fatalities to five years, an indicator of inflation expectations, has slowed since they peaked since 2008 in mid-March.
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“Inflation and rates, especially as a bond investor right now, are the calls you have to make,” said Elaine Stokes, Loomis Sayles ’fixed-income portfolio manager. “It’s your year ‘s call.”
The response to the stoppage of many investors has been to reduce some businesses geared to the strongest stage of the economic rebound. Vishal Khanduja, Eaton Vance Management’s fixed-income fund manager, has halved its overweight portfolio on U.S. inflation-linked bonds since the beginning of the year.
“Inflation expectations dislocated in 2020” in a “surgical recession,” Khanduja said. “The typical positioning after the recession that is seen to happen for several years is rapidly passing through the market.”
The Franklin Templeton Gulf Good Arab Fund has he removed his hedges against the risk of accelerating U.S. inflation, as he sees another rise in Treasury yields as “possible, not likely,” according to his Dubai-based manager.
As for some traditional inflation hedges in commodity markets, the story is about to get complicated by what the current rise in oil and copper prices so far would suggest. The BlackRock Investment Institute’s strategies predict a divergence within the asset class, as factors such as climate risks are more fully captured in prices.
“The rise in oil from the economic restart is likely to be transitory, while some metals may benefit from structural trends such as the‘ green ’transition over the next few years,” a team that included Wei Li wrote this week. .
Tremendous challenge
Meanwhile, in the bond market, traders are not reacting to the signs of inflation as might be expected. On Tuesday, data showed consumer prices in the US it peaked in March in nearly nine years, although ten-year Treasury yields fell five basis points, to a three-week low.
“The huge challenge right now, especially this year, is that the quality of almost any of the figures we’re looking at, be it short-term inflation figures, economic growth figures, these volatility,” he said. Wilensky by Janus Henderson.
– With the assistance of Netty Idayu Ismail and Sid Verma
(Add a Franklin Templeton move to the 10th paragraph)