May 3rd, 2021

Grand reopening

In Short

The global economy is enjoying a grand reopening. Rising infections still burden large parts of Europe and EMs (India, Brazil). Yet the vaccine champions are leading the way.

Amid the global economic rebound from the pandemic and rising US inflation concerns, upside pressures on yields will persist. The PEPP acceleration has not stopped the yield ascent, and the ECB faces a difficult June meeting; so does the Bund.
The Fed’s patience may stoke inflation fears, but keep real yields in check – they matter most for risky assets. Vaccination progress, large excess savings/liquidity and surging earnings keep us long risk assets (Equities, Credit) for now, and underweight in longer-dated Government bonds.
Discretionary positioning and equity fund inflows, however, have become stretched in parts. As the summer boom supports exuberance and vols recede, start thinking about cheap hedging.

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