“My apocalypse scenario -- whether or not it can happen -- in terms of where we are positioned now is clearly stagflation,” she said. “That would be a reversal of all the trends we’ve been following. I don’t think it’s a short-term scenario, but that’s the scary long-term one.”

The result would be equities remaining on the front foot initially as the economy reflates, then heading lower, bond prices falling, commodities rising and dollar weakness, she said.

The last time stagflation gripped the U.S. in the late 1970s, 30-year yields eventually doubled in a matter of years, on their way to a record high above 15% in the early 1980s. The long bond yields about 1.55% now, up from a historic low of just under 0.7% reached in March.

Telltale Signs
Others are more sanguine about growth, but still see the makings of inflation as global supply chains get clogged.

Telltale signs can be seen in the latest data. Alongside the record decline in a key measure of U.S. consumer prices in April, the cost of food at home surged 2.6% from the prior month, the most since 1974, as Americans stocked up at grocery stores. In the U.K., pet food at one point jumped 26% on an annualized basis, according to Deutsche Bank calculations.

Fiscal and monetary policy stimulus “in and of itself has a very, very important inflationary dynamic to it,” said Jeffrey Rosenberg, a portfolio manager of BlackRock’s Systematic Multi-Strategy Fund. He sees inflation as a risk starting in about six months, and one that’s will be marked by a steepening curve.

“The Covid crisis is first and foremost a massive, massive supply shock” which then “had morphed into a massive, massive demand shock,” he said.

Even as the curve steepens, market proxies for inflation projections show investors foresee U.S. consumer prices below 2% for decades, although they’re well above their March lows. Forward inflation swap rates in the U.S. and the euro-zone, favored by policy makers for long-run inflation expectations, have also rebounded yet remain below long-term averages.

BlackRock Inc.’s $20 billion iShares TIPS ETF added more than $700 million last month, the most in more than two years, data compiled by Bloomberg show.

U.S. inflation markets are too pessimistic, says Mark Cabana, head of U.S. rates strategy at Bank of America Corp.