Inflation fears are fading

Just as the market began to expect the pace of Fed rate hikes to accelerate, the market's usual expectations also began to undergo subtle changes.

Investors have withdrawn about $440 million from the $37.5 billion U.S. inflation-resistant bond ETF (TIPS) so far in 2022, the largest two-week outflow since March last year and a record for 2021. The inflow of $12.1 billion is in stark contrast.

Among them, 48% of Bank of America's monthly survey of 329 experts expect inflation to decline from now on, the highest level since 2009. The upbeat outlook reflects bond market expectations of easing price pressures, even as Omicron variants are putting new strains on global supply chains.

Bank of America strategists say investors even expect inflation to be temporary and to decline, not increase, by the end of 2022.

Supply bottlenecks and a tight job market related to the impact of the new coronavirus are cited as short-term factors behind the current price surge. Those pressures should abate as life in the U.S. returns to a temporary normalcy.