The post-election surge in U.S. assets slowed after wage growth proved disappointing in January. This, and little in the way of concrete initiatives by Trump early in the year, brought the reflation trade into question. That faith was rekindled last week after Trump promised a “phenomenal” tax plan to be announced in coming weeks.
U.S. households, for their part, also envision price pressures will march higher. Expectations for consumer price inflation rose to the highest level since mid-2015, according to a New York Fed survey released Monday. The median respondent reported an expected inflation rate last month of 2.9 percent three years ahead, up from 2.8 percent in December.
“It makes sense to be long some inflation exposure in this market,” said Subadra Rajappa, head of U.S. interest-rate strategy at Societe Generale SA in New York. There is money flowing into TIPS funds “given people’s view that there are going to be more reflationary policies put in place with the new administration."
This article was provided by Bloomberg News.