deVere Investor Insight - Q1 2021

36 Investor Insight // Q1 - 2021 Why the inflation worry? The Biden administration’s $1.9 trillion stimulus package, which has been passed by Congress, has been attacked as inflationary. And not only by Republican politicians who have suddenly rediscovered fiscal conservatism. Senior Democrats, such as former Treasury Secretary to President Clinton, Lawrence Summers, have questioned the need to a stimulus equivalent to 9% of the country’s GDP, at a time when the economy is likely to be starting a strong cyclical recovery thanks to the rollout of vaccinations. Bond markets are jittery. Higher bond yields, which investors will demand if inflation does pick up, mean lower bond prices. Because government markets are the bed rock on which other financial assets are priced, nervousness in Treasuries has spilled over into U.S equities and other asset classes. Nervousness has also spilled over into other major government bond markets, so much so that Australia’s central bank has had to respond with an emergency supplementary bond buying program, to hold down Australian bond yields.