Inflation Is Fueling ‘The Most Uncertain Time in Our Careers’

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Inflation Is Fueling ‘The Most Uncertain Time in Our Careers’
Credit: © Reuters.

(Bloomberg) -- The current denizens of Wall Street have never seen a market quite like this.

Volatility surged across assets last week as a worsening outlook for inflation and growth smashed US stocks and bonds. Inflation that’s surging at a rate unseen in decades -- and proving unexpectedly sticky -- has sent central banks scrambling to reshape policy on the fly. And that has even hardened market veterans reeling in shock, with unprecedented amounts of money flooding into cash-like instruments and facilities.

Investors gathered for the Crane’s Money Fund Symposium in Minneapolis have been busy comparing notes in the wake of a historic week that saw the Federal Reserve jack up its overnight interest rate by the most in decades, prompting a huge whipsawing of the bond market and finally dragging the S&P 500 Index into a bear market.

“This might be the most uncertain time in our careers in terms of pace and what happens with inflation,” said Peter Yi, executive vice president of short-duration fixed income at Northern Trust (NASDAQ: NTRS ) Asset Management. “There’s just a lot of volatility out there, a lot of quick changes and last week was a great example of that.” 

Uncertainty about front-end rate policy and the outsized impact that is having on longer-term assets means more and more people are looking to park bigger chunks of their portfolios in cash.

That -- combined with a healthier than expected government revenue situation -- creating a glut in funding markets, upsetting supply-demand balances in Treasury bills and bolstering the amount that needs to be parked in places like the Federal Reserve’s reverse repurchase agreement facility. The RRP is now at an unprecedented high of more than $2 trillion and it’s unlikely to ebb meaningfully any time soon, RBC Capital Markets’ Blake Gwinn said at the conference Monday.

“What we just witnessed was a perfect storm of managing cash for what we watched the Fed do,” said John Tobin, chief investment officer of money markets at Dreyfus Cash Investment Strategies, part of BNY Mellon (NYSE: BK ) Investment Management. 


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