Bridgewater’s Karniol-Tambour Says Bonds Complacent on Inflation

(Bloomberg) -- Karen Karniol-Tambour, Bridgewater Associates LP’s co-chief investment officer for sustainability, said investors shouldn’t be complacent with the bond market’s view that the largest surge in consumer prices since 2008 will be transitory.

“The bond markets are sending a very clear message: ‘This is not a big deal, it’s transitory, and not only is it transitory, but policy makers will not have to budge in response to the inflation,’” she said in an interview on Bloomberg Television. “I think that’s pretty unlikely.

The U.S. consumer price index surged 0.9% in June and 5.4% year-over-year, according to Labor Department data released Tuesday. Core CPI, which excludes food and energy, jumped 4.5% from June 2020, the most since November 1991. Yet the benchmark 10-year Treasury yield has remained little changed at 1.36%, down from as high as 1.77% at the end of March.

Investors including Westport, Connecticut-based Bridgewater, the world’s biggest hedge fund, are on high alert for whether persistently higher-than-expected price increases will lead the Federal Reserve to scale back on its $120 billion of monthly asset purchases. The central bank’s leaders are grappling with whether U.S. inflation is just temporary, driven largely by supply chain shortages and growing pains of a reopening economy, or something that could threaten its mandate for stable prices.

Without policy intervention from the Fed, investors should brace for inflation-driven swings in the market, Karniol-Tambour said. Currency exposure in particular could matter a lot more in a world in which price growth is more volatile, she said.

The Bloomberg Dollar Spot Index was up 0.3% as of 12:20 p.m. in New York, on pace for its biggest increase in a week.

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