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23 Nov 2023

Market Moves: 10-Year German Inflation-Linked Bond Surges

Today witnessed a significant market shift as the 10-year German inflation-linked bond surged by more than 1%, juxtaposed with a 0.5% drop in the 10-year German nominal yield. This move can be attributed to the recent announcement from the German Federal Government to cease sales of inflation-linked bonds starting from 2024. Additionally, Germany's Lindner announced today to suspend the debt limit (#debtbrake) for 2023 following a budget ruling. Source: Bloomberg

27 Sep 2023

TIPS - A Revival in Focus!

Long-term U.S. Treasury Inflation Protection Securities (TIPS) have witnessed a significant double-digit decline since the start of 2022, despite the presence of high U.S. inflation. While the inflation-linked component has acted as a safety net, providing a cushion of around 10% over 20 months, the surge in the 10-year real rate from -1.0% to 2.2% over the same period has had a marked and negative impact on the total TIPS yield (-14%). Yet, the question lingers: Is now the opportune moment to contemplate TIPS? We are currently at a level of LT real rates (2.23%) not seen since 2008. Interestingly, TIPS exhibit a lower beta compared to U.S. Treasuries (currently standing at 0.8). This attribute becomes especially valuable in light of the considerable volatility in U.S. interest rates (with the MOVE index still >100). hould we delve into the realm of inflation-linked bonds, which constitute a global market valued at over $3.5 trillion? This consideration gains significance as uncertainties surrounding inflation persist, driven by factors like de-globalization, supply shocks, increased fiscal spending, and the ongoing transition to renewable energy sources. Source: Bloomberg


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