BlackRock Inc. joined Pacific Investment Management Co. in recommending inflation-linked bonds and warning costs are poised to pick up.
“Stabilizing oil prices and a tighter labor market could contribute to rising actual, and expected, U.S. inflation,” Richard Turnill, BlackRock’s global chief investment strategist, wrote Monday on the company’s website. “We like inflation-linked bonds and gold as diversifiers.” New York-based BlackRock manages $4.6 trillion.
Federal Reserve Chair Janet Yellen will get a chance to give her views in a speech Tuesday at 12:20 p.m. in New York. Pimco’s Mihir Worah, one of the investors for the $87.8 billion Total Return Fund, has been telling investors this year that inflation is poised to accelerate. Fed officials Stanley Fischer and James Bullard chimed in this month to note costs are picking up.
U.S. 10-year note yields were little changed at 1.90 percent as of 11:46 a.m. in Tokyo on Tuesday, according to Bloomberg Bond Trader data. The price of the 1.625 percent note due in February 2026 was 97 19/32.
Treasury market inflation expectations and oil prices have both risen from their lows for the year set in February. A government report April 1 will show U.S. employers added 210,000 jobs in March, after hiring 242,000 in February, based on a Bloomberg survey of economists.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, has increased to 1.56 percentage points from as low as 1.12 on Feb. 11. It’s still below its average of 2.08 for the past decade.
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The Fed’s preferred inflation gauge rose 1 percent in February, a report showed Monday, half of the central bank’s target of 2 percent.
“We may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen,” Fischer, vice chairman of the Fed Board of Governors, said earlier this month.
Policy makers should consider increasing interest rates in April in reaction to a tightening labor market and the prospect of inflation overshooting the 2 percent target, Fed Bank of St. Louis President Bullard said March 23. He said in separate comments inflation hasn’t materialized as he expected.
“We like Treasury Inflation Protected Securities,” Worah said in a video on the Pimco website this month. “ The market is pricing 1 percent inflation in the United States for next year. We think it’s likely to be closer to 2 percent.”
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