Reflation trades lost a little steam as worries for global growth persist in the face of rising infection rates from new virus variants. However these worries have not stopped US indices reaching new heights. US inflation printed at the highest level we have seen in 13 years at 5.4%, used car prices getting the blame (up 10.5%) as supply chain disruption hits new car production. The Federal Reserve will come under increased pressure to act but they still insist that they see this bout of inflation as being short lived along with other Central Banks, the debate continues as to whose hand will be forced first.

The ECB has maintained that its emergency asset purchases will continue “until it judges that the coronavirus crisis phase is over” but wisely does not attempt to impose a timescale for this. As the EU publicly debates how and when to end bond buying the ‘haves’ in the form of ECB official, German Jens Weidmann and Austrian Robert Holzmann (France tagging along) argue for a reduction and the ‘have not’s’ in the form of Italian Fabio Panetta and Spanish officials argue against. Plus ca change.

The Bank of England remains on hold in the face of our own inflationary spike and also insists that it will be ‘transient’, ‘transitory’ or ‘transitive’. As the drivers of inflation shift from goods to services and wage inflation gathers pace there remains a significant chance that some of this inflation will become structural and therefore entrenched.

Credit spreads tightened on the month and remain well supported. Some individual names continue to benefit from reopening, e.g. Heathrow Funding despite the Government’s silly fiddling with their traffic light system. The primary market remained active across all currencies in Investment Grade but as ever it pays to be selective. High Yield also saw continued new issuance, at the fastest pace since 2007, most of which has little compensation for the investor. The $1.2 trillion Leveraged Loan market, benefitting from rampant appetite for its mostly floating rate structure has steadily degraded covenants on new issuance and now 80% of new issuance has no protection for the investor and no restrictions on use of proceeds at all.