Surging Inflation Is Forcing Big Investors to Recalibrate Their Strategies

The surge in U.S. inflation is sending some of the biggest names on Wall Street into rethink mode, forcing them to recalibrate strategies that depended on bonds as a shock absorber against equity downturns.

Pacific Investment Management Co., the bond-investor giant that dismissed inflation as a “head fake” earlier this year, now expects price pressures to endure. Both BlackRock Inc. and DoubleLine Capital LP have brought forward their forecasts for the next Federal Reserve rate increase to next year from 2023.

Data this month showed the U.S. consumer price index increased a greater-than-expected 6.2% from October 2020, the fastest pace in 30 years. The report confirmed inflation as one of the most underpriced risks of 2021 and hardened concern that a five-year period of steady growth and low interest rates is finally over.

“The short story is that Goldilocks is ending,” said Alberto Gallo, head of credit at Algebris UK Limited in London.

Bloomberg asked top money managers for their views on how to adapt to a period of resurgent inflation. Their comments have been edited for clarity.

Nicola Mai, sovereign credit analyst, Pimco

  • Sees inflation uncertainty; expects it to drop toward central bank targets next year

“Inflation has turned out to be higher and more persistent than we and most other market participants and analysts expected at the start of the year. Still, we continue to expect a significant deceleration in coming quarters. This is in response to manufacturing supply bottlenecks easing. We also see scope for labor participation to increase, as government benefits are phased out.