Central bank efforts to spur economic growth may bring about higher-than-expected inflation, according to Jamie Stuttard, the head of international bond portfolio management at Fidelity.
Inflation Protection
“There is not a very high probability of a strong rise in core inflation for 2013,” Stuttard wrote on Fidelity’s website yesterday. “The price of protection against inflationary scenarios may change significantly in coming years, given uncertainty about the long-term consequences of easy monetary policy across the globe.”
Investments including corporate bonds, leveraged loans and currencies can protect against rising costs in the economy, according to Fidelity, the Boston-based fund company that manages $1.64 trillion.
The Federal Reserve is purchasing $85 billion of government and mortgage debt each month, seeking to put downward pressure on borrowing costs.
The Bank of Japan is purchasing bonds and other assets, and it plans to follow the Fed by switching to open-ended debt purchases next year.
The European Central Bank has expressed a willingness to use the ECB’s resources to buy the bonds of nations that ask for aid.
Negative Yields
U.S. 10-year TIPS yielded minus 0.77 percent. The last six 10-year TIPS sales since January 2012 have drawn negative rates.
The difference between yields on 10-year notes and same- maturity TIPS, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.55 percentage points earlier this week. It was the most since November. The average over the past decade was 2.19 percentage points.