Bond Market’s Stalled-Out Reflation Trade Needs Actual Inflation
- Measures of inflation expectations have peaked after surge
- CPI figures loom, with acceleration forecast amid base effect
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The reflation trade that dominated the start of 2021 in the bond market has taken a breather, leaving investors bracing for a key set of data in the week ahead that has the potential to reaffirm expectations that price pressures will build as the economy rebounds.
All eyes will be on Tuesday’s release of the U.S. consumer price index for March, which is expected to show a significant jump. The number will likely be distorted by the huge slump in year-earlier figures at the outbreak of the pandemic. But traders may be reluctant to dismiss an acceleration -- as they did to some extent with Friday’s stronger-than-projected producer price data -- if there’s a growing sense that it marks the beginning of a trend.