The ambiguous statement from Waller has triggered a trust crisis for the Federal Reserve, while major banks like Barclays and HSBC are backing inflation-protected bonds.

Despite Federal Reserve Chair Kevin Walshs repeated emphasis on a core stance against inflation, the market continues to question the timeliness of its policy actions and the adequacy of its commitment to combating inflation. In this context, international top investment banks like Barclays and HSBC have voiced a consensus, expressing optimism about the allocation value of U.S. inflation-linked bonds, believing that these anti-inflation bonds will continue to outperform conventional government bonds. Vague policy guidance compounded by multiple risks U.S. long-term bond yields hit a new 20-year high Last week, U.S. long-term government bond yields rose to their highest level in nearly two decades, primarily due to Walshs refusal to disclose how policymakers would control inflation, raising concerns that the Federal Reserve's actions may be too late. Although Walsh has publicly declared the Fed's "zero tolerance" for persistently high inflation, ambiguous policy guidance has failed to allay market concerns. The current rise in U.S. bond yields is driven by multiple factors, with overlapping risks further amplifying market volatility. On one hand, the international oil market is experiencing significant fluctuations, and energy price volatility continues to exert inflationary pressure; on the other hand, the scale of U.S. government fiscal spending is relatively high, intensifying market anxiety. Notably, the current breakeven inflation rate, which measures market inflation expectations, is approaching its lowest level in a year, reflecting the market's underestimation of inflation risk and a prevailing sense of complacency. Multiple foreign banks voice agreement Consensus on inflation-linked bonds Jon Hill, head of U.S. inflation strategy at Barclays, stated, "I expect the market will price in higher inflation risks into the yield curve, as the previously interpreted 'dovish pause' stance is losing credibility. This will mean a widening breakeven inflation rate, and the performance of inflation-linked bonds will significantly outperform that of traditional bonds." On July 29, the Federal Reserve maintained its federal funds target rate in a range of 3.5% to 3.75%, marking the fifth consecutive time it has paused rate adjustments. Three regional Fed presidents cast dissenting votes advocating for a 25 basis points hike, indicating an increasing internal divide. Walsh emphasized adherence to the 2% inflation target while downplaying forward guidance, with the next meeting expected in September. Following the Fed's July meeting, HSBC's Dhiraj Narula reiterated his bullish outlook on U.S. long-term inflation-linked bonds, expressing concerns over the Fed's "long-term commitment to controlling inflation." From the performance observed this year, inflation-linked bonds have demonstrated stronger resistance to volatility. Data shows that the Bloomberg Inflation-Linked Bond Index has slightly increased by 0.3% year-to-date, while traditional sovereign bond indices have decreased by 0.7% in the same period. Bonds linked to inflation protect investors by paying higher yields adjusted for inflation. Currently, the real yield on 30-year U.S. inflation-linked Treasury bonds is 2.93%, having reached 3.04% last Friday, the highest level since 2008. Jorge Gallayo from Industrial Bank of France stated, "We still believe that, given the current real yields, inflation-linked bonds have investment value." He also noted that the likelihood of comprehensive peace in the Middle East is "very low," and the lower breakeven inflation point suggests that the market is underestimating the chain risks of rising energy prices affecting overall prices and wages. Renewed U.S.-Iran conflict has not intensified inflation concerns Institutional capital leads the way in positioning Market perception of inflation may undergo reshaping Institutional capital has already begun to position itself. Kevin Kidd, an investment manager at True Potential Investments, has increased the proportion of inflation-linked sovereign bonds in his portfolio to 20% of the company's total fixed income allocation. He believes that current major central banks, especially the Federal Reserve, have a much higher tolerance for rising inflation than their conveyed policy stance suggests. Kidd stated, "We think the inflation level that major central banks are willing to tolerate is higher than what they claim." Stefan Koopman, a senior macro strategist at Rabobank, believes that the core logic for allocating inflation-linked bonds is not solely reliant on inflation staying above the Fed's target of 2%, but more importantly, the inflationary anchor has shifted. He stated, "A 2% inflation rate may increasingly resemble a lower limit rather than an upper limit."