Bloomberg macro strategist Simon White (Simon White) wrote a warning that despite clear signs that upward inflation risks are rising, there is still little evidence of hedging inflation in the market.

Inflation is still the focus of the market this week. On Friday, the US will release personal consumption expenditure (PCE) data for March. White believes that regardless of the data breakdown, the trend is clearly that inflation has stopped falling, and many leading indicators indicate that inflation will make a comeback.

But this isn't just happening in the US. Across the world, inflation is resurfacing. Last year, Citibank's inflation surprise index declined in almost all regions. As of early 2024, the inflation contingency index was rising in two-thirds of the countries covered by the index.

However, the market did not set a price for it. Market analyst Ven Ram pointed out that even if the US core PCE data for March is strong later this week, it will be difficult for two-year US Treasury bonds to be sold off massively, and this may be the case in the short term. The current two-year treasury yield also does not reflect the possibility of an appropriate inflationary shock, and this shock may require the Federal Reserve to raise interest rates a few more times. Although this isn't currently a benchmark scenario, its possibilities are still underestimated.

US Treasury yields have been rising, as have gold and silver, but inflation is clearly not as urgent as seen in 2021 and early 2022, when the CPI hit a 10-year high, and the Federal Reserve has yet to raise interest rates.

One sign of the market's relative complacency is the example of two ETFs designed to hedge against inflation — INFL and IVOL. These funds saw significant inflows in 2021, but since the Federal Reserve began raising interest rates in 2022, their inflows have been sluggish and have always been so.

Capital inflows to inflation-linked bond ETFs (such as the TIP ETF) have also not significantly rebounded.

Similarly, interest in short selling US Treasury bonds remains sluggish. According to J.P. Morgan Chase's US Treasury customer survey, direct short sales are close to the lowest level in history, while interest in short selling US Treasury bonds ETF-iShares (TLT) over 20 years is also low, and there has been almost no increase.

White pointed out that all the signs indicate that the inflation alarm has not sounded. However, facts have proven that this approach is wrong, because inflation has clearly shown signs of recovery, especially in a structural context where fiscal and monetary policies are increasingly coordinated, which will help drive the long-term rise in inflation.

Editor/Jeffrey