Unlike fixed interest rate government bonds where price moves inversely to changes in nominal interest rates, inflation-linked bond (ILB) prices are sensitive to changes in real interest rates, rather than nominal interest rates. What does that mean? Well, inflation linked bonds will rise in price and provide a hedge for investors against unexpected increases in inflation.
So, interest rates and government bond yields can rise, but as long as inflation rises at a faster rate, inflation linked bonds will increase in value. ILB's are under-owned, yet well placed to protect investors in a rising interest rate and rising inflationary environment. ILB's are playing an increasingly important role in the Active Asset Allocation strategy that I recommend for Secure Investment clients.
At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader investment strategies, please get in touch at email@example.com or 086 821 5911.