Bond fund managers brace for higher inflation – Russell Investments survey – Reuters

FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

LONDON (Reuters) – Fixed income fund managers are bracing for higher inflation in the next 12 months that could encourage the U.S. central bank to dial back stimulus sooner than anticipated, a survey from Russell Investments showed on Thursday.

The Federal Reserve last week signalling its first rate hike for 2023, a year earlier than previous projections.

The survey of fixed income managers covering the second quarter found about 70% of respondents expect inflation for the next 12 months to exceed 2%, up from 38% in the previous quarter.

The 72 bond and currency managers who responded to the survey also expressed less confidence that the Fed will deliver its target inflation rate.

About 50% expect the Fed to deliver its inflation promise, declining about 10 percentage points from the previous survey, Russell Investments said.

It added that 31% of fixed income managers expect the Fed to start tapering bond purchases as early as the fourth quarter, although the consensus view was that tapering was most likely to start in the first quarter of 2022.

On currencies, fund managers expect a stronger pound — the best performing G10 currency this year.

Russell Investments said 72% of respondents expect the British pound, currently trading at $1.39, to be in the $1.41-$1.50 range in the next 12 months. In the Q1 survey, 77% of managers expected sterling to trade in a $1.36-$1.50 range.

Reporting by Dhara Ranasinghe; editing by Yoruk Bahceli