EUROPE - As pension funds move to better funding positions and look to hedge against duration, experts have seen an increase in demand and ensuing shortage of inflation linked bonds.
Hayes said he had seen interest particularly from Dutch pension funds, but it had always been prevalent in the UK because pension liabilities were contractually linked to inflation.
Siermann of Robeco said inflation would become more dominant this year, with rates picking up sharply across the world.
She believed the central banks would have a difficult time balancing, stimulating the economy and managing inflation
"Besides hedging interest rates, pension funds will have to put more effort into hedging inflation risks as well going forward," said Siermann.
Cave of Schroders said the long dated inflation linked market was the only place a pension fund could get a perfect match for an inflation linked liability.
"Investors could use the inflation swap market to generate greater flexibility as well but the fact remains that long dated inflation assets are in insufficient supply to meet demand and are relatively expensive," he said.
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