Join Adam Hetts, Global Head of Portfolio Construction and Strategy, as he speaks with Co-Heads of Strategic Fixed Income Jenna Barnard and John Pattullo about whether there is substance to the reflation trade.

Key Takeaways:

• The consensus trade expects inflation, but much of this may already be priced in, creating potential opportunities in medium-term bond yields if inflation proves transitory.

• An excess of private savings before COVID-19 required governments to spend to balance private-sector saving. In some ways, today’s fiscal stimulus is an extension of the response to the deleveraging environment that lingered after the Global Financial Crisis.

• For reflation to be convincing, we need to see evidence that households and businesses are changing their behavior toward taking on more debt – yet credit demand remains soft and markets seem to be ignoring weaker data in China.

Important Information:

Credit Spread is the difference in yield between securities with similar maturity but different credit quality. Widening spreads generally indicate deteriorating creditworthiness of corporate borrowers, and narrowing indicate improving.

Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.

10-Year Treasury Yield is the interest rate on U.S. Treasury bonds that will mature 10 years from the date of purchase.

Volatility measures risk using the dispersion of returns for a given investment.

Inflation: a general increase in prices and fall in the purchasing value of money.

Basis point (bp) equals 1/100 of a percentage point. 1 bp = 0.01%, 100 bps = 1%.

Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market.

Reflation: expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy.

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