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For several months now, investors have been buying into forecasts of a global economic rebound unleashed by widespread vaccination against the COVID-19 virus. Fears that inflation will also slip the leash when the rebound occurs took a backseat to the global reflation story. During the second week of January, this undercurrent of inflationary angst bubbled to the surface as markets factored in rising commodity and transportation costs, cash stockpiles in savings and money market accounts, the fiscal agenda of the incoming US administration and signals from the US Federal Reserve that the switch to a tightening bias could occur much sooner than previously expected.
The week ending Jan. 13 saw EPFR-tracked Inflation Protected Bond Funds extend their current inflow streak to eight weeks and $8.7 billion, Bank Loan Funds record their biggest inflow since mid-2Q18, flows into Commodities Sector Funds hit a record high and Energy Sector Funds record their 12th consecutive inflow and largest in over 11 months.