'Big investors brace for inflation comeback as rate-cut bets look risky'

 Some of the world’s largest asset managers are repositioning portfolios to guard against a renewed burst of inflation, even as broader markets remain confident that price pressures are contained, Bloomberg News reported Sunday.

BlackRock (BLK) has increased short positions in long-dated U.S. Treasuries and U.K. gilts, betting yields could rise if expected rate cuts are delayed. Bridgewater Associates is leaning toward equities over bonds, while Pacific Investment Management Co. is favoring inflation-linked Treasuries as a hedge.

Market signals back up their caution. U.S. inflation breakevens have jumped to multi-month highs, and inflation swaps are pointing to stronger price pressures ahead. Many investors worry that a resilient U.S. economy, higher commodity prices, heavy government borrowing and surging AI investment could reignite inflation, especially if Kevin Warsh pushes the Federal Reserve toward faster or deeper rate cuts.

Some strategists argue an inflationary boom is still underpriced, a scenario that could keep the Fed sidelined early in the year and force markets to price in rate hikes later. That outlook would complicate the start of Warsh’s tenure if confirmed, given his reputation as an inflation hawk and political pressure for lower rates.

Elsewhere, views diverge. Investors in the euro area largely expect inflation to stay near the European Central Bank’s 2% target. In the United Kingdom, stronger data have cooled expectations for rapid easing by the Bank of England. In Australia, traders are even betting the central bank could resume rate hikes.

In the United States, opinions are split. Some managers see inflation steadily easing toward target, while others warn it could climb above 4% by year-end amid tariffs, geopolitical risks and strong demand for energy and metals.

Against that uncertainty, inflation-protected bonds are regaining appeal as insurance. While they carry risks if energy prices fall sharply, firms like Pimco argue that breakevens remain low relative to recent inflation, making TIPS a relatively cheap hedge if price pressures accelerate again.

https://www.msn.com/en-us/money/markets/big-investors-brace-for-inflation-comeback-as-rate-cut-bets-look-risky/ar-AA1VrQO3