Combatting the inflation threat
By International Adviser, 5 Jul 18
Investors need to be focusing more attention on the potential for rising rates – both inflation and interest – and the implications for fixed income portfolios as global economic growth conditions continue to improve, says Neuberger Berman’s Jon Jonsson.
The manager of Neuberger’s Global Bond Absolute Return Fund says the calm in financial markets has begun to break – as evidenced by the market turbulence in the first quarter of the year.
Higher volatility should become the norm moving forward, due to the likelihood of elevated inflation and higher interest rates.
After years of subdued inflation, many developed economies are now transitioning to an environment where inflation will meet – and potentially exceed – central bank targets.
For example, eurozone inflation has rebounded from deflationary prints only 18 months ago, while UK inflation has been running ahead of the Bank of England’s 2% target since February 2017 – partially driven by a fall in sterling and rise in import prices after the Brexit referendum. Even Japan has posted 13 straight months of positive changes in core consumer prices.
As for the US, while headline numbers for core personal consumption expenditures – the Federal Reserve’s preferred inflation metric – remain below target, the pace of inflation has picked up sharply in recent months, in conjunction with the accelerating economy. Wage pressure is continuing to intensify in the US, largely due to capacity constraints and low levels of unemployment.
The likely return of elevated inflation and higher volatility means investors must look across the entire fixed income spectrum to extract value.
Click through the numbers under the image to read Jonsson’s five key trades to combat the inflation threat:
Tags: Inflation | Neuberger Berman
