UK - Schemes will find opportunities in actively managed inflation-linked bonds next year due to the differential between RPI and CPI-linked bond yields, an asset manager claims.
M&G Investments institutional gilts fund manager Miles Tym (pictured) predicted CPI-linked bonds will start to be issued in the 2012/13 fiscal year, developing a parallel market between RPI and CPI that active bond managers will express a view on.
He explained: “If you end up with a parallel market for the two, a fund manager will be able to take a view on whether the differential between RPI and CPI will be bigger or smaller than everyone else is expecting and be able to position the portfolio effectively.
“Once the CPI market starts trading there will be a natural difference between the real yield offered by RPI and CPI-linked bonds.”
Tym said pension funds were currently sitting on the sidelines when allocating to index-linked bonds because of the uncertainty around the development of a CPI-linked market.
Some pension funds are already using CPI rather than RPI to link some or all of their liabilities to inflation – the British Airways and BT schemes have done so already.
Aviva Investors head of fixed income client portfolio management Anne-Sophie Girault said opportunities were rife in emerging market index-linked bonds, but not many UK schemes were aware of it.
She said schemes could cast their net wider than just UK inflation to build debt exposure or compliment an existing allocation to emerging markets.
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