Still, the U.S. bond market saw traders reinstate some positions over the past week that imply a pickup in consumer-price pressures in the longer term. The yield premium on 30-year Treasuries over five-year debt climbed toward an almost four-year high following the vaccine reports.
Inflation Outlook
For Russell Silberston, an investment strategist at asset manager Ninety One Plc, inflation is more likely to return in the U.S., given the Fed is willing to tolerate an overshoot of its 2% target.
But across much of the rest of the world, the vaccine news just eliminates the worst-case economic scenarios. Even in the U.S., the central bank could choose to extend the maturity of its asset purchases next month, which could “limit curve steepening,” according to JPMorgan.
“The consensus among policy makers was that there was always going to be a vaccine and that was embedded in their forecasts,” Ninety One’s Silberston said. “All that has changed is that it has come a bit more quickly and appears to be more efficient.”
Years of central bank easing in the developed world -- first in the wake of the financial crisis and now amid the pandemic -- shows that reigniting inflation won’t be an easy task. And in the U.S., whether the fiscal taps open as well, depends largely on the outcome of the senate race.
“The size of the fiscal package likely coming from the U.S. is materially lower than expectations pre-election,” said John Taylor, a money manager at AllianceBernstein LLP. “We’re waiting for a better entry point before building a bigger inflation position.”
This article was provided by Bloomberg News.