Matthew Toms, Atlanta-based chief investment officer of fixed income at Voya Investment Management LLC, said in a phone interview, "You've got a demand resurgence creating goods inflation that we have generally not seen in the prior 20 years. With a correlation of demand increase, you're not having just a transitory push, it's a cyclical push."
"In the prior two cycles you've never had enough of a prominence of the cyclical inflationary force to define bond yields and inflation premiums," Mr. Toms said. "The reality is that the question in the market is: Are those long-term disinflationary forces we saw in goods over the last 20 years. ... Are they over or not?"
"The concern that the market has is that the cyclical wave will marry into a global structural force that will become longer term," Mr. Toms said, "(that) structural disinflationary forces (are) at work in the world long term."
As of Dec. 31, Voya's core AUM for U.S. tax-exempt institutions was $14.3 billion, up 13.9% from a year earlier.
Rick Rieder, New York-based managing director, CIO of global fixed income and head of the global allocation team at BlackRock Inc., said in a phone interview, "I actually don't believe that inflation is going to be durably higher. It's going to be shocked higher in the next couple of months or so, but I think the Fed's largely right."
The current problem for investors, Mr. Rieder said, is that it's better to invest in cash than to take a negative return in fixed income if returns are not exceeding real-rate inflation.
"It's just not worth owning, but then we try to get yield in the places that we think will be consistent performers that generate returns," Mr. Rieder said.
Mr. Rieder said they have been finding yield in sectors like securitized assets, residential real estate, commercial real estate and collateralized loan obligations.
"We've been dabbling a bit in emerging markets to get some yield in the portfolio," said Mr. Rieder, "and frankly put more interest rate exposure outside the U.S. in places like China where rates are incredibly stable, (as well as) parts of Europe."
Overall money flows into emerging market debt securities totaled $31.2 billion in April, according to the Institute of International Finance, up from $3 billion in March, with emerging markets in Asia accounting for nearly half of the April total.
Mr. Rieder reiterated that in this environment it's important to "think globally about where to get that interest rate exposure."
BlackRock's core fixed-income AUM totaled $150.6 billion for U.S. tax-exempt institutions as of Dec. 31, up 13.4% from the prior year.