Global investment views by Pascal Blanqué

Bubbles, tantrums and the revenge of value
A big shake-up is under way in bonds – rising UST yields, a steepening yield curve (2-10Y) and inflation expectations are leading markets to question whether we are facing a taper tantrum 2.0. We think that the risk of the Fed taking pre-emptive measures to stop its buying programme in the next 12 months has been exaggerated. The Fed will remain cautious and downplay inflation risks. Therefore, we could see a healthy increase in yields, driven by expectations of a recovery. US inflation now seems to be having a technical rebound, driven by base effects and ISM input prices, but viewing this as only a short term pattern could be a mistake. Once these so-called base effects fade, markets will realise there is something more structural to inflation. The era of low growth, low inflation and zero rates forever is coming under attack, with a new narrative emerging: inflation is returning. On the other hand, CBs and governments need money to help challenged businesses survive, create new jobs and finance projects to address inequalities and climate issues. Fighting inflation is not the top priority, with the focus on full employment.

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