Could Brexit change attractiveness of conventional and inflation-linked gilts?

Inflation-linked bonds have been out of favour for the past three years as global developed market headline inflation rates and inflation expectations have fallen in the face of tepid economic demand and weak oil and commodity prices.

Although investors have generally benefitted from falling real yields, disappointment has occurred from falling inflation expectations blunting investment returns. The UK is a good case study for this. Since June 2013, the real yield on a 10-year inflation linked gilt has reduced from -0.5% to the current -1.6%. However, the 10-year breakeven (Retail Price index) inflation rate (essentially the bond market's implied inflation rate for the next 10 years) has fallen from 3% in June 2013 to 2.4% currently. As a result, a 10-year inflation linked gilt in 2013 has underperformed its conven...