The veteran of the bond, Greg Wilensky, has hit the boom over an increase in inflation too many times to get carried away with this year’s big reflection trade.
“I have been managing bond portfolios for 25 years through very large monetary programs, large deficits and the Fed is trying to raise inflation expectations,” Janus Henderson, money manager, said in an interview. “As much as I can see legitimate reasons why this could happen this time, I could also say it very often over the last twelve years.”
Wilensky’s skepticism is an example of the cool enthusiasm of investors for commitments related to rapid economic recovery and higher prices. Trading values that favor economically sensitive value stocks, steeper yield curves and a recovery in commodities have soared to stars first term.
The MSCI AC World Value Index has outperformed its growth counterpart by March 6 by about 6 percentage points. Treasury Treasury yields have retreated about 13 basis points all this quarter, even as U.S. inflation data begins beat expectations. And Tuesday’s strong 30-year Treasury auction suggested that demand for even the interest rate-exposed bonds return.
One of the biggest questions facing money managers now is whether the surge in growth and inflation that is stimulating – especially in the US – could translate into a sustainable expansion that will increase equities and bond yields. The International Monetary Fund recently upgraded its global growth forecast for 2021 to the strongest in four decades, but the outlook out there is less clear.
It is even more difficult for investors to consider a path for price levels beyond this year, given the curvature effect of coronavirus closures, temporary bottlenecks in supply and base effects of last year’s disinflation. A rise in five-year US disruptions – a measure of inflation expectations – has slowed since reaching its highest level since 2008 in mid-March.
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“Inflation and rates, especially as an investor at the moment, are the call you need to make,” said Elaine Stokes, portfolio manager of fixed income at Loomis Sayles. “This is the call of your year.”
The reaction of many investors was to hold back some transactions that were instituted at the sharpest stage of the economic boom. Vishal Khanduja, fixed income fund manager at Eaton Vance Management, has halved the portfolio’s overweight in US inflation-linked bonds since the beginning of the year.
“Inflation expectations were disrupted in 2020” in a ‘surgical recession’, Khanduja said. “The typical position after the recession that you see taking place over several years is going through the market fast.”
Franklin Templeton’s Gulf Arab Bond Fund has removed its hedges against the risk of accelerating US inflation because, according to its manager in Dubai, he does not see an increase in treasury yields as possible.
As for the traditional inflation hedges in the commodity markets, the story will soon become more complicated than the rise in oil and copper prices to date would indicate. Strategists at the BlackRock Investment Institute expect a deviation within the asset class, as factors such as climate risks are more fully captured in prices.
“The increase in oil from the economic resumption is likely to be preliminary, while some metals will benefit from structural trends such as the ‘green’ transition for the coming year,” a team including Wei Li said this week. a note written.
Great challenge
Meanwhile, traders in the bond market are not responding to signs of inflation as one would expect. The data showed US consumer prices on Tuesday climbed the most in nearly nine years in March, but ten-year treasury yields fell by five basis points to their lowest in three weeks.
“The huge challenge at the moment, especially this year, is that the quality of almost any of the numbers we are looking at, whether the short-term inflation figures, the economic growth figures, these things are very distorted by the economic volatility,” said Janus Henderson. said Wilensky.
– Assisted by Netty Idayu Ismail and Sid Verma
(Add Franklin Templeton move in 10th paragraph)