Feb 7 2007
Bond investors, such as those investing in pension funds, should not be overly concerned with the headline inflation figures published by the government, it has been claimed, as yields from these bonds are more closely related to the direction of nominal growth.
Fidelity International reports that 30-year inflation-linked bond investments have experienced high demand from insurance companies and pension funds, but noted that this demand has made the investments expensive.
Alex Veys, fixed income portfolio manager at Fidelity International, said: "Inflation is sitting at its highest level since the Bank of England took control of interest rates in August 1997, yet bond investors should not be alarmed by this red herring."
He also added that the monetary policy committee (MPC) of the bank had predicted a fall in inflation during 2007.
Lloyds TSB stated this week that the MPC would act to avoid increasing inflation during 2007 and commented that economic evidence suggested a further increase in interest rates was "on the cards".
