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Fixed Income, Inflation, Tapering, and Tantrums

Is it Possible to Taper Without the Tantrum?

The 2013 'Taper Tantrum' was a unique event in which market participants were caught off guard by Federal Reserve Chair Ben Bernanke's announcement to begin reducing the amount of monthly asset purchases undertaken by the Fed. In 2021, given the improving economic outlook and the swollen balance sheets of central banks across the globe, investors are expecting further moves towards monetary policy normalisation and hoping that policymakers can avoid future tantrums in the process. 

The following list of papers discusses U.S. monetary policy, the present inflationary environment, and the impact that these and other macroeconomic factors are likely to have on global bond markets.

monetary policy punch bowl

Tapering vs Tantrums – What's In store? (Diamond Hill CM, 2021)

Diamond Hill provides an excellent summary of post-GFC U.S. monetary policy actions. Can policymakers succeed in tapering quantitative easing this time around while drawing lessons from the 2013 'Taper Tantrum' without eliciting a repeat of that event?

Fixed Income: Preparing for the big shift (SSGA | SPDR, 2021)

For compliance reasons, this paper is only accessible in the United States and Canada

State Street Global Advisors looks at four trends within fixed income markets: indexing, ETFs, ESG integration, and reduced barriers to entry in Chinese bond markets.

Controlled Deflation of the China Property Debt Balloon (T. Rowe Price, 2021)

For compliance reasons, this paper is only accessible in certain geographies

This article from T. Rowe Price describes the policy backdrop in China and the implications of recent regulatory changes for the Chinese property debt market.

The Growing Appeal of China Bonds for Global Investors (Manulife IM, 2021)

For compliance reasons, this paper is only accessible in certain geographies

A tailwind is building in the bond market in China, propelled by index inclusion and a reduction in barriers to entering this market. Manulife Investment Management describes these and other appealing elements of China's bond market.

Managing Risk Amid Uncertainty: Commercial Real Estate Debt (Nuveen, 2021)

Nuveen describes the factors leading to a healthy demand for commercial real estate debt from global investors, including downside risk protection and reliable cash flows.

The Upside-Down Fixed-Income Market (CFA Institute Research Foundation, 2021)

Since the onset of the Global Financial Crisis and the establishment of quantitative easing measures, bond yields have fallen to not only low levels, but have turned negative in many parts of the world. This paper from CFA Institute Research Foundation delves into the odd world of negative interest rates.

Inflation & Real Assets: An inflationary environment (BlackRock, 2021)

For compliance reasons, this paper is only accessible in the United States and Canada

Real asset investors have been increasingly focused on inflation. In this paper, BlackRock discuss their views on inflation, whether it is transitory and where it will go. More importantly, they discuss the reasons why real assets may perform well in periods of higher inflation, and tools and strategies real assets investors should deploy in a higher inflationary environment.

The Inflation Paradigm – Transitory or permanent? (Man Group, 2021)

In this discussion piece, leading economists, academics, and central bankers consider inflation and its relation to unemployment, how expectations are set and, perhaps most importantly, whether it is likely to be transitory or permanent.

Quarterly Fixed Income Outlook: Q4 2021 (PGIM Fixed Income)

In their Q4 fixed income outlook, PGIM Fixed Income describes how the global bond market is responding to the conflux of higher inflation, less QE, and corporate crackdowns.

What to Do in the Case of Sustained Inflation (GMO, 2021)

GMO states that dealing with inflation comes down to either a decision to hedge (via TIPS, commodities, or other inflation-protected assets) or to invest in stores of value. After extensive analysis, they lean towards the latter, represented foremost by the real cash flows embedded within equity securities.

Credit Journal: Sovereigns (Fitch Ratings, 2021)

This edition of Fitch's Credit Journal focuses upon sovereign credit, specifically the impact of higher inflation on sovereign yields and sovereign credit ratings.

Inflation and Its Impact On the Stock-Bond Correlation (Qontigo, 2021)

Qontigo examines the relationship between stocks and bonds over the past 70 years to shed some light on recent changes in the correlation between these two asset classes.

Tapering Without the Tantrum (Janus Henderson Investors, 2021)

For compliance reasons, this paper is only accessible in certain geographies

Janus Henderson fixed income portfolio managers and traders look at the outlook for U.S. mortgage-backed securities, given the likelihood of Fed tapering.

The Long Unwinding Road: Fed tapering and U.S. inflation (Capital Group, 2021)

For compliance reasons, this paper is only accessible in certain geographies

Fixed income portfolio managers from Capital Group discuss the recent spike in U.S. inflation and expectations for the Federal Reserve's tapering of asset purchases later this year.

What To Do If You Are Worried About Inflation (TEBI, 2021)

Larry Swedroe discusses the results of a recently published paper on inflation and the assets classes that have protected investors against inflation over time.