Reflation has been the hot topic in the markets since the start of the year as inflation expectations have been rising rapidly on prospects of economic recovery. Meanwhile, a surge in commodity prices has exacerbated the boom, leading to higher yields in government bonds. What is the truth behind this narrative? How long will it last and what is the potential impact on the bond markets?

In this webcast, Jenna Barnard and John Pattullo dissect the reflation narrative, sharing their contrarian views on the subject — explaining why they do not see much substance to the reflation narrative beyond the short term. They will also discuss their asset allocation strategies since the start of the COVID crisis and what they intend to in the coming months.

Key Takeaways

  • The reflation trade is not a big regime shift. Contrary to popular belief, the reflation trade began in March 2020 at the low of the cycle and lot of the expectations has been priced in since then.
  • For reflation to be convincing we need to see evidence that households and businesses are changing their behaviour towards taking on more debt, yet credit demand remains soft.
  • Another important element in global growth and inflation, and one that markets seem to be ignoring currently, is China. Whereas in the last crisis China’s rising credit impulse helped to reflate the global economy, this time they are more focused on their domestic conditions and rebalancing their economy.

Note: this webcast was recorded on Wednesday 24 February 2021.