BlackRock, Bridgewater and PIMCO reposition as "inflationary boom" risk builds
A US‑led “inflationary boom” is now the risk big money says markets are underpricing — and some of the world’s largest managers are already repositioning for it.
According to Bloomberg, BlackRock, Bridgewater Associates and PIMCO are quietly shifting portfolios on the view that inflation could re‑accelerate and that rate cuts may be fewer, later, or both.
BlackRock’s Tactical Opportunities Fund has been adding short positions in long‑dated US Treasuries and UK gilts since late last year.
Co‑manager Tom Becker expects strong economic growth and rising commodity prices to keep upward pressure on consumer prices.
In parallel, Bridgewater prefers equities over bonds in this environment, while PIMCO likes US Treasuries with inflation protection embedded in their yield, particularly Treasury Inflation‑Protected Securities (TIPS).
These moves follow a marked shift in market pricing.
Bloomberg notes that the spread between nominal US Treasury yields and inflation‑protected notes has jumped in January to the highest level in months, while inflation swaps have also climbed.
Ben Pearson, a senior trader at UBS Group AG, calls a US‑driven “inflationary boom” the most underpriced risk facing investors this year.
He argues that if that scenario plays out, the US Federal Reserve may stay “fully on the sidelines” in the first half and markets would need to price in rate hikes later in the year.
Policy risk is adding another layer.
US President Donald Trump has nominated Kevin Warsh to succeed Jerome Powell as the next Fed chair, with Powell’s term ending in May.
Warsh has a reputation as an inflation hawk, but he will also face political pressure to deliver the rate cuts Trump has openly sought.
Steven Barrow, head of G‑10 strategy at Standard Bank, told Bloomberg he sees the 10‑year US Treasury yield potentially jumping to 5 percent from around 4.25 percent if the White House’s push for aggressive cuts is blocked.
Bloomberg strategist Simon White adds that Warsh “is set to have a difficult task whatever happens, either defending cutting rates when it’s clear inflation is a problem, or suggesting to [US] President Donald Trump that a hike is necessary,” warning that “doing nothing won’t be an option in perpetuity.”
The Fed itself left rates on hold at its latest meeting and described inflation as “somewhat elevated,” signalling that it does not see price risks as fully resolved yet.
The dispersion in views on US inflation is unusually wide.
Steven Williams, head of global fixed income for Europe, the Middle East and Africa at Amova Asset Management, told Bloomberg he is convinced price pressures are easing and sees a CPI print below 2 percent as possible by summer, from roughly 2.7 percent now.
He expects “two or more, maybe four cuts this year, if our inflation view comes to fruition.”
Money markets are currently pricing in only two quarter‑point cuts in 2026, underscoring the gap between some manager views and market pricing.
On the other side, Lazard chief executive Peter Orszag recently argued that US inflation back above 4 percent by year‑end is not just plausible but the “most likely scenario.”
He points to resurgent tariff tensions, rapid advances in new technologies and geopolitical risk as factors that make inflation forecasting “fraught.”
Bridgewater also flags the artificial intelligence boom as a key wildcard; even if AI proves disinflationary over time, its near‑term demand for chips, power and talent “exacerbates a ‘challenging environment’ for bonds.”
PIMCO sees TIPS as relatively cheap insurance: inflation is above central‑bank targets and there is near‑term risk of reacceleration, yet longer‑term breakeven inflation remains low.
Michael Cudzil, a senior portfolio manager at the firm, says that “if inflation were to outpace the Fed’s target, which it has for the past four or five years, then we think that’s decent protection.”
At the same time, TIPS are no free lunch.
Vanguard senior portfolio manager Brian Quigley told Bloomberg that breakevens could fall sharply if oil prices — which they have closely tracked so far — were to drop.
He came into the year positioned for a steeper US yield curve and has kept that stance, favouring curve shape over simple duration bets.
According to CNBC, the 10‑year US Treasury yield climbed more than 4 basis points on Monday to 4.283 percent, with the 2‑year moving to 3.576 percent and the 30‑year to 4.914 percent.
The move followed a much stronger‑than‑expected January ISM manufacturing reading of 52.6, versus 48.4 expected by economists polled by Dow Jones.
FWDBONDS chief economist Chris Rupkey called it the “best sign yet that the economy is advancing at a strong pace,” noting that business confidence and orders have jumped.
On the fiscal side, the US Treasury still expects heavy borrowing.
Reuters reports that the department now plans to raise US$574bn in the first quarter, only US$3bn less than previously forecast, and US$109bn in the second quarter, while maintaining large cash balances.
Thomas Simons, chief US economist at Jefferies, wrote that the new numbers “reflect little change from November and, thus, present little risk of any changes to coupon auction sizes in the near term.”
Markets widely expect the Treasury to keep note and bond auction sizes unchanged for an eighth straight quarter.
For portfolio builders, the signal is less about a single inflation outcome and more about the range: from sub‑2 percent US CPI with multiple cuts to an “inflationary boom” with renewed hikes.
According to Bloomberg, some of the world’s largest managers are not waiting for clarity; they are shortening duration at the long end, tilting toward equities and selectively using TIPS and curve trades as targeted hedges.
