The search for inflation hedges and negative real bond yields are at the heart of investors’ concerns

The COVID crisis and then the war in Ukraine have led to high inflation in OECD countries on the back of the rise in commodity prices (and due to some other mechanisms, the rise in profit margins in particular). For various reasons (fear of stifling growth, need to ensure public debt sustainability and finance the “war economy” in Europe and the energy transition), central banks are hardly reacting to the inflation and real interest rates will remain highly negative, even for risky (High Yield) bonds. This configuration (inflation and negative real interest rates) may last longer than previously expected. The priority for investors will then be to hedge against inflation and reduce their bond exposure. This should lead them to prefer: Inflation-indexed bonds; Real assets (real estate, infrastructure, etc.), which benefit from negative real interest rates; Equities (listed and unlisted), preferring sectors where companies have strong pricing power and steering clear of sectors affected by the war in Ukraine; Commodities that will be in high demand due to the energy transition.