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Funds that have inflation-protected bonds enjoy their funds longer entry line in more than a decade, while investors are created to raise consumer prices as the U.S. economy recovers.
Another $ 1.2 billion flowed into funds buying U.S. Treasury inflation-protected securities, or tips, the week ended Wednesday, according to data provider EPFR, the 29th consecutive week of net inflows . This brought the total for the year to $ 14.4 billion.
He The current period of influxes is the longest stretch since the aftermath of the global financial crisis, when Tips funds recorded uninterrupted growth from December 2008 to early 2010.
“Inflation is the number one concern,” said Collin Martin, Charles Schwab’s fixed income strategist. “[Tips] they won’t give you a great return or return potential, but if you’re worried about a significant positive surprise in inflation, there’s really no better investment that can act as hedging. ”
Markets have been intensely focused on the inflation outlook since the first signs of November that the global coronavirus vaccination campaign would move faster than expected.
The $ 1.9 million Biden administration’s fiscal stimulus program was approved in March. more fed predictions higher prices to come, with prominent economists, including former Treasury Secretary Larry Summers warning on the risks of overheating of the world’s largest economy.
The Federal Reserve’s favorite inflation gauge (core PCE) was 1.4% in February and policymakers have pledged to keep ultra-accommodative monetary policy up to an average of 2%.
Fed Chairman Jay Powell and other central bank officials have argued that any increase in price pressure will be “transientAnd it will probably fade as supply chains adapt to growing demand.
Popular market measures of inflation expectations indicate that Wall Street is generally in line with this view. The two- and five-year equilibrium rates, which are derived from Tips and forecast inflation in two and five years, are now at 2.63% and 2.57%, respectively, both of which have been below the 2% in December. The ten-year meter is lower, however, by 2.3%.
As equilibrium indices have risen, treasuries have been depleted with a longer date as the value of these bonds is eroded by inflation. This brought the ten-year Treasury yield from below 1% at the beginning of the year to a high of 1.78%. It now stands at 1.55%.
Investment strategists expect strong economic growth and inflation to add even more: Bloomberg forecasts point to a 2% return at the end of the year.
“Transients [inflation] it can move markets, “said Alexandra Lawson, Goldman Sachs Asset Management’s fixed-income portfolio manager.” This in itself can lead to higher inflation expectations. “
He added: “If you think inflation expectations lead to more permanent inflation, you can help offset that in the exposure to Tips.”
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