According to Reuters, some US bond market participants foresee a risk of a spike in inflation next year that could boost volatility in treasuries and spur losses for bond funds. Nancy Davis, manager at the Quadratic Interest Rate Volatility and Inflation Hedge, told Reuters that there has been a jump in interest in recent weeks from investors worried about a rebound in prices of some of the consumer and set prices quashed earlier this year by the coronavirus crisis.
However, while stock markets have rallied in the past few weeks on expectations for a coronavirus vaccine-led swift economic recovery, the debt market indicators of inflation have not budged. For instance, the yield on the five-year treasury inflation-protected securities or inflation-linked bonds remains well below the US Federal Reserve's 2% inflation target.
Morgan Stanley expects the breakeven inflation rates to rise above 2% by the end of 2021.
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