Are inflation-linked bonds worth their price?

INFLATION

Fears that quantitative easing will lead to a jump in inflation have led many investors to buy index-linked bonds. But with official inflation figures continuing to show declines, Annabelle Williams asks managers how they expect the sector to fare.

When the US and UK governments began their unprecedented money-printing programmes through quantitative easing, many predicted inflation would soar. “The argument was that growth in narrow money would generate broad money growth, which eventually would drive up inflation. Hence, the returns of linkers would be boosted and they would outperform conventional bonds,” explained Stuart Edwards, manager of the Invesco Perpetual Global Bond fund. Inflation is a complex phenomenon, with the UK ‘importing’ about 25% of its inflationary changes. In the years since the economic crisis, inflation...