41 min

Global Perspectives: Reflation: Is This the Real Thing or Just Fantasy‪?‬ Knowledge Shared

    • Investing

Join Adam Hetts, Global Head of Portfolio Construction and Strategy, as he speaks with Co-Heads of Strategic Fixed Income Jenna Barnard and John Pattullo about whether there is substance to the reflation trade.

Key Takeaways:

• The consensus trade expects inflation, but much of this may already be priced in, creating potential opportunities in medium-term bond yields if inflation proves transitory.
• An excess of private savings before COVID-19 required governments to spend to balance private-sector saving. In some ways, today’s fiscal stimulus is an extension of the response to the deleveraging environment that lingered after the Global Financial Crisis.
• For reflation to be convincing, we need to see evidence that households and businesses are changing their behavior toward taking on more debt – yet credit demand remains soft and markets seem to be ignoring weaker data in China.

Important Information:

Credit Spread is the difference in yield between securities with similar maturity but different credit quality. Widening spreads generally indicate deteriorating creditworthiness of corporate borrowers, and narrowing indicate improving.

Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.

10-Year Treasury Yield is the interest rate on U.S. Treasury bonds that will mature 10 years from the date of purchase.

Volatility measures risk using the dispersion of returns for a given investment.

Inflation: a general increase in prices and fall in the purchasing value of money.

Basis point (bp) equals 1/100 of a percentage point. 1 bp = 0.01%, 100 bps = 1%.

Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market.

Reflation: expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy.

The views presented are as of the date published. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment and does not form part of any contract for the sale or purchase of any investment. Past performance is no guarantee of future results. Investing is subject to risk, loss of principal and fluctuation in value.

Not all products or services are available in all jurisdictions. This material or information contained in it may be restricted by law, and may not be reproduced or referred to without express written permission or used in any jurisdiction or circumstance in which its use would be unlawful. Janus Henderson is not responsible for any unlawful distribution to third parties, in whole or in part. The contents have not been approved or endorsed by any regulatory agency.

Janus Henderson Investors is the name under which investment products and services are provided in (a) Europe by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier) (b) the U.S. by SEC registered investment advisers that are subsidiaries of Janus Henderson Group plc, (c) Canada through Janus Capital Management LLC only to institutional investors in certain jurisdictions, (d) Singapore and South Korea by Janus Henderson Investors (Singapore) Limited, (e) Hong Kong by Janus Henderson Investors Hong Kong Limited. This material has not been reviewed

Join Adam Hetts, Global Head of Portfolio Construction and Strategy, as he speaks with Co-Heads of Strategic Fixed Income Jenna Barnard and John Pattullo about whether there is substance to the reflation trade.

Key Takeaways:

• The consensus trade expects inflation, but much of this may already be priced in, creating potential opportunities in medium-term bond yields if inflation proves transitory.
• An excess of private savings before COVID-19 required governments to spend to balance private-sector saving. In some ways, today’s fiscal stimulus is an extension of the response to the deleveraging environment that lingered after the Global Financial Crisis.
• For reflation to be convincing, we need to see evidence that households and businesses are changing their behavior toward taking on more debt – yet credit demand remains soft and markets seem to be ignoring weaker data in China.

Important Information:

Credit Spread is the difference in yield between securities with similar maturity but different credit quality. Widening spreads generally indicate deteriorating creditworthiness of corporate borrowers, and narrowing indicate improving.

Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.

10-Year Treasury Yield is the interest rate on U.S. Treasury bonds that will mature 10 years from the date of purchase.

Volatility measures risk using the dispersion of returns for a given investment.

Inflation: a general increase in prices and fall in the purchasing value of money.

Basis point (bp) equals 1/100 of a percentage point. 1 bp = 0.01%, 100 bps = 1%.

Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market.

Reflation: expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy.

The views presented are as of the date published. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment and does not form part of any contract for the sale or purchase of any investment. Past performance is no guarantee of future results. Investing is subject to risk, loss of principal and fluctuation in value.

Not all products or services are available in all jurisdictions. This material or information contained in it may be restricted by law, and may not be reproduced or referred to without express written permission or used in any jurisdiction or circumstance in which its use would be unlawful. Janus Henderson is not responsible for any unlawful distribution to third parties, in whole or in part. The contents have not been approved or endorsed by any regulatory agency.

Janus Henderson Investors is the name under which investment products and services are provided in (a) Europe by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier) (b) the U.S. by SEC registered investment advisers that are subsidiaries of Janus Henderson Group plc, (c) Canada through Janus Capital Management LLC only to institutional investors in certain jurisdictions, (d) Singapore and South Korea by Janus Henderson Investors (Singapore) Limited, (e) Hong Kong by Janus Henderson Investors Hong Kong Limited. This material has not been reviewed

41 min

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