Special Reports » OTHER REPORTS » INFLATION-LINKED BONDS

— Mihir Worah, inflation portfolio manager, Pimco

The inflation-linked bonds market has been robust lately. But will the recent US subprime problems cause it to plunge into trouble, as some old hands in the investment community have suggested? As Gerry O’Kane reports, markets and central banks will provide the key.

If they had not all been away on holiday, you could just imagine the older hands of the investment community wagging their fingers and cackling: “I warned you whipper-snappers those new-fangled subprime collateralised debt obligations would cause trouble… ”

David Dyer, investment manager, fixed income at Axa Investment Managers, analyses the history of inflation linked bonds and how threats against current benign inflation rates have prompted institutional investors to manage risk levels more effectively.

— David Dyer,AXA IM

Uncertainty about demand levels has led the UK government to syndicate its 50-year inflation-linked bond rather than auction it. However, the sector is steadily growing in Europe, the US and the UK, with regulatory changes allowing hitherto reticent countries to get involved, writes Paula Garrido.

Ray Dalio puts the case forward for global over domestic inflation-linked bonds in an investment portfolio.

— Peat: double-digit equity growth is no longer expected

New products from national treasuries are spurring growth in the inflation-linked bonds market. Gerry O’Kane reports.

— Bitsberger: ‘most investors now consider Tips a separate asset class’

US Treasury inflation-protected securities are big business. Henry Smith interviews one of the key personalities overseeing their issuance and growth.

— Tarik Ben-Saud: equity bear market changed pension funds’ attitude to risk-taking

Inflation-linked securities, with their high correlation to liabilities, will play an important part in pension funds’ strategies to reduce risk while delivering returns in excess of liabilities, writes Tarik Ben-Saud .

Returns from a traditional portfolio can be further enhanced when global inflation-indexed bonds are held instead of a solely domestic inflation-indexed bond allocation.

The current economic environment makes inflation-linked bonds a suitable vehicle for investment, say Jean-François Boulier, Isabelle Vic-Philippe and Said Moualil. But what are the main sources of added value?

— van Dootingh: ‘pension funds can use inflation-linked swaps to fine-tune liability exposure’

What is driving the increased demand for inflation-linked securities? Susanne van Dootingh discusses the drivers, focusing on the

Europe-wide trend towards liability matching.

— Grice: pension fund investors should ensure they have some protection against inflation

A moderate, sustained increase in inflation could result in unwelcome capital losses for investors in conventional government bonds. Paul Grice argues the case for instruments offering returns that move in tandem with rising prices.