• Potential for rising yields and a powerful reflation trade: In the wake of faltering bonds in 2020, a new powerful cross-asset trend emerged: the reflation trade. Reflation is defined as the expansion of an economy’s output by either monetary or fiscal policy. It is not necessarily the act of reflation that has sounded some alarms, but the speed of reflation that has caused us to consider what this may mean.
  • Shift from monetary to fiscal policy: Post-2008, markets have turned to the Fed and other central banks to ease their pain with quantitative easing. After the Covid-19 crisis, markets have begun to sing a different tune. From a trend perspective, this means that bonds seem to exhibit less negative correlation to equities and seem to cushion the downside in equities less than in previous years.
  • Concerns over inflation: Given the recent trend in bonds, massive reflation trades, and the shift from monetary to fiscal policy, inflation may well be a concern for investors. If inflation were to come back, even at moderate levels, it would affect cash flows and real assets such as bonds and commodities. Overall, higher inflation tends to mean more trends, which can provide opportunities for trend-following strategies.


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