Gulf crisis: rush for anti-inflation bonds, but the window risks closing

It has always been known that inflation is a rather difficult animal to tame, but this time, after the flare-up of the past few years, the central banks thought they had really had it. However, the ongoing military escalation in the Middle East has reshuffled the cards on the table, for the ECB and the Federal Reserve certainly, but also for investors who are clearly re-evaluating financial assets that can offer their portfolios natural protection against rising prices.

The leap of the barrel of crude oil above one hundred dollars and the doubling of natural gas prices in the space of a week are alarming savers, who are grappling with everyday expenses and extreme uncertainty about possible developments over the coming months. However, the thick fog, which for the time being makes it impossible to guess the medium-term developments of the conflict and primarily its repercussions on commodities, seems to be holding back an immediate adjustment of the markets and makes hedging against inflation theoretically still possible and above all worthwhile.

Finint's research office points out, for example, that the real yields expected for the next ten years in the United States have indeed suddenly returned to growth, by about ten cents to 0.8%, but are still well below the 1% level around which they were travelling at the beginning of the year. This latter circumstance leads Private Bank analysts to emphasise that "the upward movement of bond yields these days, even on medium-long maturities, is certainly due to the war in Iran, but an important component is also linked to a recovery phase after two months in which the market had perhaps run a little too far".

Investors are therefore once again raising their guard over inflation, but do not yet seem to be discounting the worst-case outcome. The confirmation comes in this case from UniCredit Research, which looks rather at Europe, where the swap rates measuring medium-term inflation expectations are still hovering around 2%, the ECB's target level: a value that on the one hand represents the highest level reached in almost a year, but which still appears to be historically low.

In other words, the market is still betting on a de-escalation scenario or, at the very least, on a controlled impact of energy prices, and in a similar context "inflation-indexed bonds," the analysts point out, "remain attractive as hedges. However, not all bonds are clearly the same: those with a short maturity, UniCredit explains, "tend to be more sensitive to commodity price fluctuations, as investors perceive the impact of such shocks as temporary". Precisely for this reason they are more effective as hedges than long-term ones whose rates 'are instead more stable and influenced by long-term dynamics such as growth potential, productivity and demographic changes'.