J.P. Morgan Asset Warns on Inflation as Bond Market Sees Uptick

  • Forecasts for low U.S. inflation are outdated, Mandel says
  • Global bond-market inflation outlook jumps to eight-month high

J.P. Morgan Asset Management, overseeing $1.7 trillion, says U.S. inflation is picking up.

“U.S. inflation has actually come back,” Benjamin Mandel, a strategist for the company in New York, said Thursday on Bloomberg Television. “This idea that U.S. inflation is low and is always going to be low is an anachronism.”

Bond yields indicate investors expect worldwide inflation of 1.17 percent over the life of securities, the highest level in eight months. The number is calculated by comparing yields on nominal bonds with those on inflation-linked debt, using Bank of America Corp. indexes. It’s still less than the 2 percent target set by central banks in the U.S., U.K. and Japan.

Benchmark U.S. 10-year note yields fell two basis points, or 0.02 percentage point, to 1.54 percent as of 6:52 a.m. in New York, leaving them five basis points lower this week, Bloomberg Bond Trader data show. The 1.5 percent security due in August 2026 rose 6/32, or $1.88 per $1,000 face value, to 99 20/32.

To watch Mandel’s interview, click here.

Economists expect the gain in Treasuries to be fleeting, with the yield seen climbing to 1.7 percent by year-end, based on the median forecast in a survey conducted Aug. 5-10.

More Clues

Traders will be looking at the next slew of data on the world’s largest economy for more clues on the path of inflation and interest rates. Reports are due Friday on producer prices, consumer sentiment and retail sales.

The Commerce Department will say store sales continued to climb in July after a string of robust gains in the second quarter, according to economists surveyed by Bloomberg. The University of Michigan’s sentiment index is forecast to rise in August from July.

“We expect positive growth in U.S. retail sales, which would be the fourth consecutive month where figures come in above zero,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “The consumer-sentiment index is also expected to have improved.”

The probability of a 2016 hike rose to 49 percent, from 47 percent a week ago, according to futures data compiled by Bloomberg.

San Francisco Fed President John Williams, who isn’t a voting member of the policy-setting Federal Open Market Committee this year, told the Washington Post Thursday that “a gradual path of removing accommodation, taking our foot very gradually off the gas” is appropriate, starting this year.

Markets are “changing their view on the Fed because of the quite-positive data,” Figge said.

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