Wall Street Giants Pivot: The "Reflation Trade" Returns

Major asset managers are quietly aggressively adjusting their portfolios, signaling that the battle against inflation is far from over. Despite consensus narratives suggesting price stability, industry heavyweights including BlackRock, Bridgewater, and PIMCO are betting on a new wave of inflationary pressure.

Institutional Shorting of Bonds

The smart money is moving against government debt. BlackRock has reportedly increased short positions on U.S. Treasuries and UK Gilts, anticipating that yields have further to climb.

• Market Signals: The spread between standard U.S. Treasuries and Treasury Inflation-Protected Securities (TIPS) has widened to multi-month highs.
• Derivatives Action: U.S. 10-year inflation swap rates jumped 11 basis points in January, the sharpest rise in a year.

PIMCO has explicitly favored TIPS, viewing them as a necessary hedge against structural inflation that persists above the Federal Reserve's2% target.

The Drivers: AI, Commodities, and The Fed

Analyst View

Standard Banks FX Strategy Head, Steven Barrow, warned that if the White House pushes for aggressive rate cuts, the U.S. 10-Year Treasury yield could spike toward 5%.

“The 'inflationary boom' scenario is the most underpriced risk in markets right now,” noted UBS trader Ben Pearson, suggesting the Fed may be forced to hold rates steady through H1 2025.

Key Economic Watchlist

• Feb 2: ISM Manufacturing PMI
• Feb 6: Non-Farm Payrolls (NFP) & Unemployment Rate