Inflation resistance

iBoxx inflation-linked indices as tools to manage inflation risk and diversify returns

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Despite years of structural softening globally, inflation may soon pose significant risks that could be transitory or enduring. COVID-induced monetary and fiscal stimulus, amongst other factors, has contributed to widespread inflationary fears, some already justified by recent inflation prints. This prevailing narrative has dominated discussions in investor circles, including news and social media of late.

In this whitepaper, we revisit existing fixed income inflation-linked financial products, through the scope of iBoxx indices, which are key to hedging and expressing views on the trajectory of realised and expected inflation.

We review inflation, analyse the iBoxx inflation-linked index ecosystem, and consider index applications in portfolio construction.

We discuss:

• The peacetime trend in inflation and the current potential inflection point

• Real returns, iBoxx inflation-linked bond indices and their performance drivers

• Deconstructing and expressing views on 'breakeven inflation'

• A dynamic US Treasuries/TIPS strategy based on diversified inflation signals

• Applications of linkers and breakeven inflation in fixed income and multi-asset portfolios

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