US investors reposition as inflation risk resurfaces, managers favor Treasuries, TIPS and equity tilts

Professional investors are actively reworking allocations after market indicators and fresh data flows suggested inflation expectations have stopped falling and, in some pockets, are drifting higher. Portfolio teams at major managers are using a mix of tactics — short positions on long-dated government bonds to reduce duration, increased exposure to equities where nominal growth prospects look more attractive, and selective purchases of inflation-protected securities to insure against upside consumer-price surprises. Market-implied breakevens and pricing in inflation swaps moved higher in January, reinforcing a cautious stance among strategists. Complicating the picture, high-frequency alternative inflation indexes that use transaction and point‑of‑sale data have shown materially lower year-on-year readings than official series, creating a bifurcated information set that could either restrain or accelerate the pace of Fed easing depending on persistence. Political and policy noise from Washington — including public rhetoric favoring a softer dollar — has already been associated with meaningful currency swings, weighing on dollar funding and prompting some institutions to expand hedging programs. The nomination process for a high-profile Federal Reserve post has amplified policy uncertainty; markets must reconcile the odds of earlier easing with the nontrivial chance of a more restrictive path that keeps long yields elevated. Regionally, investors see divergent prospects: euro-area inflation expectations remain relatively subdued while the UK and Australia have shown renewed upside surprises, the latter pushing 10-year yields toward the 5% area and forcing domestic duration reassessments. BlackRock and other large houses have signaled structural changes in how fixed income is used in portfolios — favoring shorter duration, active duration management and greater attention to liquidity and supply dynamics — after trimming some long-dated sovereign holdings. The repricing raises the prospect of higher volatility in fixed-income markets, tighter domestic financial conditions where long yields rise, and mark-to-market losses for investors anchored to a lower-for-longer view. Crypto and dollar-sensitive risk assets are also exposed: tighter on‑chain supply, mixed ETF flows and elevated derivatives funding rates can amplify macro-driven moves in thin parts of those markets. Managers are therefore layering scenarios — combining curve positioning with inflation hedges and selective equity tilts — to preserve optionality as incoming official prints and the durability of alternative inflation measures will be decisive for next steps. For policymakers, the episode compresses room for error: signaling premature easing risks credibility if inflation re-accelerates, while delaying cuts could fray markets and raise borrowing costs. Overall, the current repositioning underscores a shift away from treating disinflation as the uncontested baseline and toward more active, scenario-based risk management across asset classes.