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Our views 28 April 2021

The best inflation approach? Keep calm and diversify

5 min read

In July last year we looked at the potential for inflation to be the ‘hidden risk’, as governments around the world put in place extraordinary support measures to combat the effects of the Covid-19 outbreak. We thought that while inflation was likely to remain benign, the risks to that view had increased, but that hedging those risks was relatively cheap.

Since then, we’ve seen a host of changes that have had an impact on government bond markets. The election of Joe Biden as US President obviously had an impact, but this was magnified when the Democrats were able to take control of the Senate. We expected this to lead to a large fiscal stimulus package and this was duly passed.

In the UK, a Brexit deal was agreed before Christmas, avoiding the cliff-edge no-deal outcome that markets had feared. And most importantly, the approval of several vaccines and efforts to get these rolled out, led to hopes that 2021 could see the start of a global economic recovery.

Read in full: The best inflation approach?