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Global inflation-linked bonds
Since the UK first issued inflation-linked bonds in 1981, investors have steadily increased their allocation to this unique asset class. Today, the global inflation-linked bond market is worth over $2 trillion. There are two main explanations for this rise to prominence.
First, because their payments to investors are adjusted in line with movements in consumer prices, inflation-linked bonds, such as US Treasury inflation-protected securities (TIPS) and UK index-linked gilts, can help to protect capital against erosion by inflation. After a long period during which policymakers appeared to have brought inflation under control, the low interest rates and unorthodox monetary policies adopted by western economies since the financial crisis have led to worries that central banks may have started a long-term inflation problem.
Second, inflation-linked bonds not only offer protection against rising prices, their low correlation with other asset classes means that they can act as a valuable way to diversify an investment portfolio.
At Standard Life Investments, we have been a major player in the inflation-linked bond market since its creation, assembling a skilled and experienced team. Led by Jonathan Gibbs, our real returns team adds value by exploiting differences between interest rate and inflation environments worldwide. Meanwhile, our active management and innovative investment process, which combines intensive quantitative and qualitative research with broader market insights, can help to enhance returns.