Bond traders around the world are quietly positioning themselves to protect against a sudden surge in inflation

Just as bond traders are becoming more confident that inflation is finally under control, a camp of investors is quietly building defensive positions to prevent future inflation spikes. These fund managers are building positions to cushion fixed income returns in the event of an inflation shock. Wall Street strategists also recommend taking advantage of the decline in market-based future inflation indicators to build defensive positions. Now that rate cuts are inevitable, recession has replaced inflation as the main concern. Some investors said the hopeful news pushed benchmark bond yields sharply lower, but some believe the decline may be too large. "We think concerns about a recession are a bit overdone, but at current yield levels, inflation risks may be underestimated," said John Bilton, head of multi-asset strategy at JPMorgan Asset Management. Bilton said that given "some factors may push inflation higher," he remains "roughly neutral" on duration or interest rate risk exposure. (Jinshi)