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Benchmark 10-year U.S. Treasury yields have risen over 70 basis
points this year as investors bet on a strong economic recovery
that will boost inflation. The U.S. Federal Reserve now targets
an "average" of 2% inflation, instead of a fixed 2% goal, giving
it more flexibility.
According to the Russell survey conducted in February, 76% of
respondents expect U.S. inflation to hover between the Federal
Reserve's target rate of 1.8-2.4%. Just 10% see a deflationary
environment ahead, versus 21% in the previous quarter's survey.
Of the 50 bond and currency managers that responded to Russell's
first-quarter survey, 57% expected the global economy to recover
to pre-pandemic levels in 2022.
Bond and currency managers expected investment grade assets will
offer the most attractive risk-adjusted returns in the next 12
months, favouring high-yield assets and emerging market local
and hard currency debt.
The survey revealed a preference among money managers for the
Brazilian real as the most attractive emerging market currency
in the next 12 months. Almost 89% expected a positive
performance from emerging market currencies.
The real has lost around 6% so far this year against the dollar,
underperforming broader emerging currencies though they too are
down 0.7% year-to-date.
Russell said 71% of managers expect emerging market FX implied
volatility to rise in the next 12 months compared to 57% who
predicted higher implied volatility for major currencies.
Investors appear to have become less bullish on the euro, which
61% of managers saw in a $1.21-$1.25 range. Russell's
fourth-quarter 2020 survey showed 73% believed the single
currency would trade between $1.21 and $1.30.
The euro was near $1.19 on Tuesday.
(Reporting by Dhara Ranasinghe and Sujata Rao; Editing by Saikat
Chatterjee)
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