reflation
Noun
Meaning
inflation of currency after a period of deflation; restore the system to a previous state
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Capping yields in unison with a reflation narrative means increased inflation expectations and lower real yields…the magic formula for higher gold prices.
Global reflation is the name of the game with the Aussie, and iron ore especially has boosted AUD as it amounts to over a third of the country’s exports.
Given the recent pullback in the pro-cyclical reflation areas of the market, we favor the reflation theme areas geared towards an improving economy over the defensive bond proxies based on improving fundamentals and compelling relative valuations.
This could be nothing more than a rebound from the excesses of the coronavirus crash, but if the spreads approach/rise above 1 percentage point it’s going to be a lot tougher to dismiss a reflation forecast.